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THE FINANCIERS AND THE NATION
AND THE NATION
by The Rt. Hon.
THOMAS JOHNSTON, P.C.
With a Preface by
METHUEN & GO. LTD. LONDON
36 Essex Street W.C.
First published in
PRINTED IN QR1AT BRITAIN
I REGARD Mr. Johnston's book as of great public
service. We cannot be too plainly reminded of
the way in which the public is periodically fleeced
by financial tricksters and swindlers ; because these
highlights of capitalist enterprise are, after each
exposure, quickly forgotten. It is remarkable how
regularly during the past hundred years the story is
repeated. Each decade sees a new variant, but the
process isfces'sentially the same. Tens of thousands of
small investors, and also some large ones, are persuaded
by lies and misrepresentations to purchase shares in
what is simply a swindle. Hundreds of thousands,
if not millions, of pounds are pocketed by the swindlers
and the crowd of accomplices and parasites who
' in the ordinary course of business ' co-operate in
what must not yet be termed fraud. Presently there
is a collapse, and, more or less, exposure : occasionally
one or more of the chief swindlers gets prosecuted
and sentenced to prolonged imprisonment at the
public cost. But there is no effective or prolonged
publicity. All the influences c in the City ' combine
to hush things up. Any angry talk is bad for business
on the Stock Exchange. The banks fear the spread
of panic and conceal their own losses. The news-
papers are warned on behalf of influential *people
that any financial scandal interferes with legitimate
business, and especially with the advertising of c pro-
moters.' And so the interest of the public in the latest
IV THE FINANCIERS AND THE NATION
financial swindle dies down. The figure of losses is
concealed. Presently the crowd of small investors
are ready to be robbed again, in some i?ew guise.
Meanwhile, it should be noted, hundreds of little
swindles are carried on to the detriment of the^ublic,
without any overt criticism or public denunciation.
How large is the proportion of rubbish among widely
advertised articles, sometimes ' capitalized ' at a
monstrous price extracted from the investing public,
from patent medicines to cheap glow-lamps, no one
has ventured to compute. I do not remember that
any professional economist has taken the trouble to
estimate the total * exchange value ' during any one
year of the various kinds of ' illth ' that masquerade as
Mr. Johnston's plain-spoken account of a dozen
or so of the most spectacular of these swindles will, I
fear, seem to some people almost indecent. To the
honest and respectable banker, or the old-established
stockbroker specializing in investment business, or
the steady-going manufacturer producing a sound
article, it will certainly seem in the highest degree
unfair to class all sorts of swindling, along with their
own upright service, as part of ' the capitalist system.'
Their protest would secure more support were it not
for one fact. It is just these honest and respectable
business people who make possible the htishing-up
of the various successive scandals. If they united
to demand public investigation and effective publicity
the public would not be able so quickly to forget, and
the new variant that the swindlers are even now
elaborating would have to be postponed. But there
is a more serious civic offence of which the banks and
the Stock Exchange and such bodies as the Federation
of British Industries are habitually guilty. Whenever
the Government, or some important members of
Parliament, are at last moved to devise some legis-
lative reform,, which would make the successive
financial swindles more difficult or more dangerous
to th&r perpetrators, there is only the faintest support
from * the City.' Presently, indeed, memoranda
begin to pour in, showing that the proposed new
restrictions to prevent swindling, or the suggested
additional requirement in the revelations of pro-
moters' prospectuses, would c interfere with legitimate
business. 5 The desired reforms are obstructed,
whittled down and often prevented. That legitimate
concern for their own profits, which the honest and
respectable financiers are so prompt to manifest,
actually keeps open the door for renewed swindles.
It is even argued that the losses from such swindles are
the price that has to be paid for industrial and financial
freedom. It is a drawback that the price is not paid
by those who get the profits of that freedom !
This attitude of the honest and respectable bankers,
the old-established stockbroker doing investment
business, and the steady-going manufacturer producing
a sound article, is what justifies, and even compels,
our inclusion of all the swindles, great and small, in
the capitalist system for which the nation relies for
nearly all its production and distribution of wealth.
It would? indeed, be unfair to blame the bankers, the
stockbrokers, and the manufacturers for causing the
swindles. The proceedings of Hatry or Kreuger,
Bottomley or Farrow, White or Loewenstein ; or tltose
of the more shady of the issuers of foreign loans, or
new amalgamations, are not actually caused > by the
capitalist system. But I think we are warranted in
concluding, from the history of the past hundred years,
that they are what the logicians used to call ' insepar-
viii THE FINANCIERS AND THE NATION
able accidents 8 of such a system. And it is the honest
bankers, the respectable stockbrokers, and steady-
going manufacturers, who, whenever t the question of
reform arises, in effect tell us that theje c accidents '
are * inseparable ' from their essential freecjdm to
Mr. Johnston has useful sections on such improve-
ments in the system as the effective nationalization of
the Bank of England ; the development of municipal
banks like that of Birmingham, established by so
reckless a Socialist as the present Chancellor of the
Exchequer ; the throwing open to wider utility of the
Post Office Savings Bank ; and the planning and
direction of a capital investment Board. These are
all reforms that have received high expert support.
I must refrain from doing more here than invite the
reader's special attention to them.
PREFACE ....... v
I. THE STEAM POWER SPECULATORS i
II. FOREIGN LOAN PANICS .... 5
III. THE GREAT RAILROAD RAMP . . .14
IV. TRUCK TRICKS . . . . . .21
V. THE VULTURES . . . . 27
VI. USURY ON THE GREAT WAR . . . -45
VII. POST- WAR * PROSPERITY ' . . .62
VIII. How FARROW'S BANK FELL . . . .68
IX. PLUNDERING THE MUNICIPALITIES . . -74
X. LESSONS FROM LEE BEVAN . . . 79
XI. THE METHODS OF MR. BOTTOMLEY . . .83
XII. WHITE AND LOEWENSTEIN : LEADERS OF MEN . 94
XIII. THE KREUGER SWINDLES . . . 101
XIV. THE DISSIPATION OF BRITISH THRIFT . .no
XV. REMEDIAL MEASURES : A NATIONAL INVESTMENT
BOARD . . . . . .122
X THE FINANCIERS AND THE NATION
XVI. REMEDIAL MEASURES : A STATE-OWNED BANK OF
GREAT BRITAIN . . . . 135
(a) THE DOUGLAS SCHEME . 144
(b) THE LIVERPOOL NOTE ISSUE /. 147
(c) THE GUERNSEY EXPERIMENT . 149
(d) PROFESSOR SODDY'S PROPOSAL . 152
(e) THE GESELL THEORY . .154
XVII. REMEDIAL MEASURES : THE POST OFFICE BANK . 156
XVIII. REMEDIAL MEASURES : MUNICIPAL BANKING . 163
XIX. REMEDIAL MEASURES : GO-OPERATIVE BANKING 177
XX. THE JOINT STOCK BANKS AND THE MAGNATES OF
THE GITY . . . . .180
XXI. HIGH FINANCE AND THE CRISIS OF 1931 . . 193
INDEX ... . ... 203
Parts of the earlier chapters in this book were written
for and first appeared in the columns of Reynolds and
Forward. The Editors of these papers are thanked
for permission to alter and reprint.
THE STEAM POWER SPECULATORS
* Within a few hours of a state of barter . . . the rash spirit
of speculation.' HUSKISSON, President of the Board of Trade, 1826.
IT was in the year 1825 that the newspapers
first began to publish, with any regularity, a
Money Article. That was when the first big Stock
Exchange crisis had developed out of the mad finance
speculations during the application of steam power
The use of James Watt's great discovery of steam
power in industrial processes was accompanied by
a wild scramble in company-promoting in foolish
and frequently bogus enterprises ; and while the
capital savings of the nation were swept into the
clutches of plausible crooks, a generation which ought
to have benefited from the new powers in wealth
production, was suddenly, and to the victims incom-
prehensibly, engulfed in ruin, distress, and misery.
In the year 1824, companies to the number of 156
had been formed with an issued capital of 48,000,000
to manufacture with steam power. By the beginning
of 1825 these companies had increased in number
to 624 with a capital of 379,000,000 ; the imports
of raw cotton rose by 61,000,000 Ib. ; a company was
formed with Lords Lansdowne and Liverpool as
President and Vice-President respectively to spend
1,000,000 on the cultivation of mulberry trees and
the silk- worm in Great Britain and Ireland. Shares
2 THE FINANCIERS AND THE NATION
in South American concerns rose to fabulous heights ;
the i o instalment of the 40 United Mexican
share sold for 155, and the 70 instalment of the
Real del Monte 400 share for 1350. Especially
great was the London Stock Exchange credulity about
Peru, where it was said silver was so plentiful that
the meanest utensils were made of it.
Then came the inevitable slump, and the total savings
of hundreds of thousands of families disappeared.
Of the 624 steam companies with the capital of
-379,000,000 already referred to, only 283, with
48,000,000 of the stock subscribed, survived on the
stricken field. Seventy banking houses closed their
doors, six of them in London ; and there was a run
on the Bank of England to such an extent that, as
Huskisson, the President of the Board of Trade,
declared : c We were within a few hours of a state of
Fortunately so the story goes at a desperate
moment in the fortunes of the Bank of England,
some one discovered 600,000 or 700,000 one pound
notes lying in a box in the cellars, overlooked when
the Bank had called in its small notes in the previous
year. This timely and opportune discovery (whether
of old notes, or notes hurriedly printed, who can tell ?)
saved the situation ; the City Merchants passed resolu-
tions of confidence ; the Bank of France" (how re-
miniscent of the autumn of 1931 !) lent two millions
in three months' bills ; and the Bank of England
just, but only just, weathered the storm.
Nevertheless, in February 1826, sixty banking
firms*stopped payment, and the nation, in Canning's
words, went through ' one of the most tremendous
and searching convulsions ever experienced in any
country ' ; thousands were ruined ; all the South
THE STEAM POWER SPECULATORS 3
American and Mexican investments disappeared,
and not until the end of the year did ' confidence '
One adventure of the 1825 speculation is worth a
line in memoriam. It is of a churning company which
actually sent out a group of Scots lassies as milkmaids
to milk the cows and make butter in Buenos Aires.
When they got there they found that the shops had
already all the butter they could sell, and that the
gauchos and the natives anyhow preferred oil.
In this great crash of 1825-6, hundreds of thousands
of humble folk were stripped of all they possessed, not
because of speculation or gambling in which they
themselves had participated, but because the bank
directors to whom they had for safety entrusted their
slender savings had rashly and madly adventured
them in crazy and wild-cat hazards and follies in
the search for profits.
Not all the companies floated in these hectic days
of 1824-5 were concerned with steam-power pro-
duction. There was, for example, the London
Genuine Snuff Company and the Economic Funeral
Company, to say nothing of the Cemetery Company
advertised in The Times as promoted to give * perfect
security for the dead. 9 And the crash, when it came,
disclosed a disturbing number of bankers, who had
engaged in personal speculation with their depositors'
money. There was, for example, the Fauntleroy
case, where Henry Fauntleroy, the managing director
of the banking house of Marsh Sibbald, Stracey *&
Co., was proved guilty of forging signatures and
stealing 170,000. The bank was smashed and
so, alas ! were the confiding depositors. Fauntleroy
was hanged outside Newgate Prison in November
4 THE FINANCIERS AND THE NATION
The banking house of Remington, Stephenson &
Co. failed with liabilities of 508,000. Here the
chairman was M.P. for Leominster, treasurer of
Bart's Hospital, and (as later transpired) was a con-
siderable performer at the gaming-tables witri the
money of his depositors and clients. His personal
share in the embezzlement was 200,000, and when
detection became inevitable, he annexed another
50,000, and bolted for Savannah !
Queen Elizabeth, we know, ran State lotteries ;
the British Museum was partly built from the proceeds
of a State Lottery in 1 753 ; and, until they were
abolished altogether by Act of Parliament in the year
1826, there were continual public lotteries of one kind
or another where a citizen might take a gambler's
throw with his money. But the public lottery must
have been a safe gilt-edged investment compared with
the private banking establishment of a century ago.
The resources of the private banker were limited, and
it only required the collapse of one or two of the
company promoters he had financed to compel him
to close his doors, and in so doing ruin his unfortunate
FOREIGN LOAN PANICS
* Every loan
Is not merely a speculative hit,
But seats a nation, or upsets a throne.'
BYRON, Don Juan.
THE second large-scale mania and panic of the
century occurred in 1835, and was due to huge
losses incurred by the banking houses of London in
the financing of foreign loans. In the first quarter
of the century our bankers had ventured abroad
100,000,000 of borrowed money. The Rothschilds
had pioneered the international loan idea loans to
Prussia, Spain, Naples, the Argentine, Columbia,
Guatemala, and large-scale dealings in Russian and
Danish loans. Of this 100,000,000, no less a sum
than 25,000,000 never received a dividend, and sank
without trace, spurlos versenkt \
Of the balance the Argentine defaulted in 1833 ;
and Columbia and Guatemala paid nothing for years ;
the Report of the Council of Foreign Bondholders
records the fact that Mexico had borrowed 3,200,000
f v om the London Bank of B. A. Goldsmidt & Co. at
5 per cent., in 1824 ; she has long since defaulted
upon that loan, and we are not surprised to learn
that the loan was so floated that Mexico had some
apparent justification for defaulting, inasmuch as
she only received 58 for every 100 of the debit she
O THE FINANCIERS AND THE NATION
There are eight States in the United States Con-
federation, who between them borrowed 15,040,000
from London in the good old days a century ago, and
who have since been too proud to pay ekher principal
or interest. These original borrowing? in these
American defaults are :
The Council of Foreign Bondholders in 1930
asserted that the arrears of interest on the American
defaulted loans had accumulated to the sum of
52,339,200. If Mr. J. H. Thomas (with the Irish
scalps on his belt) ever hears of the American repudia-
tions there may yet be a war, economic or military,
En passant, we note that in 1832, the year of our
great Reform Act, the financial houses in London
were engaged in a filibustering war which has been
completely crowded out from our school history
books. It was the war of Dom Pedro, a gentleman
who was financed by the money brokers of London
and who was supplied with British officers and
stores in an attempt to capture the throne of
There was no pretence here of carrying the blessings
o civilization, or Christianity, or colonization or the
Pax Britannica, no fear of revenge or any of the usual
reasons for war ; it was just a gamble for loot and
plunder. Admiral Napier was placed in charge of
Dom Pedro's fleet by the London money market, and
when Napier seized Oporto, first a sum of 800,000,
and subsequently a further 2,000,000 worth of
FOREIGN LOAN PANICS 1
Portuguese Bonds, were unloaded upon British
Great Britain was not at war with Portugal, never-
theless the Dom Pedro filibustering expedition was
organised and equipped by London banking houses,
the prime motive, says Mottram, 1 being ' the unloading
of insufficiently secured paper upon the investing
When Dom Pedro's predecessor and opponent,
Dom Miguel, hurriedly left Portugal (with a pension
of 1500 a year for life, which, to do him credit, he
afterwards declined to accept) things looked merry
for the London speculators. There was to be a golden
harvest. But alas for human gratitude, the new
Dom Pedro government actually imported Germans
and Belgians and treated the British money-lenders
shamefully ; in fact, they declined to pay either
principal or interest upon the buccaneering costs
of the London Money Market expedition, and for
years certainly until 1856 the London Stock
Exchange in disgust refused to allow any further
Portuguese quotations upon their lists.
The big Dom Pedro loan in London was for
2,000,000, at 5 per cent., but since for each 100
bond he only received 48, it is obvious that he was
expected to pay over 10 per cent upon what he actually
received, For later loans he had to promise to pay
even more ruinous terms. But the Dom (as we have
already shown) paid neither principal nor interest,
and he actually levied a 15 per cent, import difty
upon the equipment and clothes for his Stock Exchange
financed English army of mercenaries. ,
So much for our old ally of the House of Braganza !
Among the other ramps to which we can trace the
1 History of Financial Speculation, p. 179.
8 THE FINANCIERS AND THE NATION
second great panic and distress of the nineteenth
century were the South American adventures of our
A rebellion in Columbia, cynically described upon
the prospectus as a War of Independence, was financed
through Herring, Graham, & Powles in 1820 ; the
terms of the loan were 2,000,000 at 10 per cent.,
but only 84 was given the Columbians for each 100
of actual debt they incurred, and the London lenders,
in addition, were to retain eighteen months' interest
In 1824 the Columbian War of Independence was in
full swing (during the war the insurgent leader Bolivar
issued a decree, Guerra a muerta, death to any Spanish
prisoners) and Messrs. Goldsmidt & Co. of London
obliged by raising from British investors a further
4,750,000 at 6 per cent,, for the insurgents against
Spanish rule, but only 88 los. to be given for each
100 nominally borrowed.
By 1826 this loan also was in default.
Over the exploitation of Honduras there have been
frequent disputes between the money kings of New
York and London ; operations for the investors of
Britain being initiated by Messrs. Bischoffsheim &
Goldsmidt, of London, and a lien obtained on railways,
mahogany forests, and revenues of the State domain,
as security for a 10 per cent, loan issued at 80. These
Honduras loans, as we shall see later, 1 became the
subject of a special public inquiry by a Select Com-
mktee of Parliament. Honduras began defaulting
upon her debts to London as early as 1827.
Nicgjragua paid nothing on her debt to London from
1827 to 1874, when she offered a composition of 14
per 100 stock. Two English groups, however, held
1 P. 34-
FOREIGN LOAN PANICS Q
on to liquor and tobacco monopolies in Nicaragua
until 1910, when these monopolies were declared to be
* unconstitutional * by the Nicaraguan Government.
Brazil since t about 1825 might have been described
as a Rothschild State.
The chief financiers of the Argentine have been
Baring Brothers, Murrietta & Co., Stern Brothers, and
Erlangers. A 6 per cent. Argentine loan raised in
London at 85 was in default in 1830.
Paraguay gave a London finance house 8 per cent,
bonds of 100, but got only 64 cash ; the British
investor subscribing 80, but the finance house de-
ducted i 6 for its trouble. This loan also was defaulted.
A struggle over the coffee warrants in Guatemala
between rival gangs of money-lenders in London and
Berlin, each claiming priority in taxation of the
Guatemalan farmer, caused much ill-feeling between
Britain and Germany in the 'nineties, and contributed
something to the ill-will which exploded in the Great
War in 1914.
Ecuador has had long periods of being unable or
unwilling to pay tribute to the London money market.
Greece was assisted by the London money-lenders
with an ' Independence * loan in 1824. The amount
was 800,000, but even the Encyclopaedia Britannica
draws attention to the fact that after commission, etc.,
was deducted all that reached Greece was 280,000.
The next loan to promote Greek * Independence ' was
in February 1825, and the amount was 2,000,000 at
5 per cent. But the Greeks only got 56 los. per iob*,
and their loan was spent for them in the purchase of
two frigates. Upon these amazing ramps Greeco paid
nothing from 1827 to 1879, although the Rothschilds
were on the scene between 1830 and 1840 with fresh
loans secured upon the customs receipts of the country.
10 THE FINANCIERS AND THE NATION
And while upon the subject of these foreign in-
vestments of British * savings 5 and ' thrift ' one must
refer to Mr. H. N. Brailsford's inimitable picture, in
his War of Steel and Gold, of the Turkish railway over
which he once had the misfortune to travel. The
foreign financiers who had secured the railway con-
cession had also secured a guarantee from the Turkish
Government of a fixed profit per mile of rails laid
down ; they, therefore, instead of running their
railway in a straight line from point to point, conceived
the ingenious idea of running it zigzag, backwards and
forwards, in order to double the mileage. Under
such circumstances the railway could never pay ; but,
no matter ; the foreign financiers had the right to
seize the tithes of the Turkish peasants in any year in
which there was a default.
Two finance houses kept clear, or all but clear, of the
hazardous ramps with British deposits in the South
American insurrections of a century ago ; these two
houses were the Barings and the Rothschilds.
The grandson of a Lutheran pastor in Bremen had
become the founder of the Baring Brothers firm in
London, where he had collected a fortune of
7,000,000 ; from him have descended the noble
families of Northbrook and Ashburton.
But of the story of the Rothschilds a little more is
known ; we are told that Nathan Rothschild^ the third
son of an old Frankfort banker, arrived in Manchester
with 20,000 in his wallet, and without the ability
t& speak a word of the English language ; at Man-
chester he throve in cotton deals, and then moved to
Napoleon had invaded Germany, and the Prince of
Hesse-Cassel, at that time reputed to be the wealthiest
man in Europe, had fled, but before his departure
FOREIGN LOAN PANICS II
he had left 600,000 in the charge of Nathan Roths-
child's father. The origin of this 600,000 and the
remainder of the great Hesse-Cassel fortune has been
traced to the ^patriotic practice of the Hesse-Cassel
gentleman in selling his soldiers cheaply to the English
Government, by whom they were used to fight against
the American colonists and against the French in
Spain. He sold his fellow-countrymen with the same
concern as a farmer sells his cattle no less and no
more. His father, who had been at the job before
him, died in 1785 worth 56,000,000 thalers, or, say,
8,000,000. His son continued to sell his subjects
as cheap fodder for the English in their wars, and added
greatly to the family wealth. And old Rothschild
pere was the agent, or factor, for the investment of all
this Hesse-Cassel money. As one reads the story of
these cold-blooded traffickings in the conscript soldiery
of Hesse-Cassel, one almost understands the Nazis of
The 600,000 already referred to was sent on to
Nathan Rothschild in London for security ; when he
received the money he speculated with it ; he financed
Wellington's Peninsular War at ' enormous profits '
profits declared by his contemporaries to be 150,000
a year for eight years. His relatives in Paris mean-
while financed the French, doubtless also at enormous
profits, and presumably also with Hesse-Cassel money.
By the year 1812, says Count Corti, in his story of
the Rise of the House of Rothschild, Nathan was in
' immediate touch with the private finances of the
British Royal Family.' Two years later, in 1814, the
Rothschilds were financing the return of the Bourbons
to the throne of France, and after the fall of Napoleon
at Waterloo they metaphorically had all the Govern-
ments of Europe in their capacious pockets.
12 THE FINANCIERS AND THE NATION
Nathan had become a nationalized Britisher in
1804 ; in 1815 he was created an Austrian nobleman ;
he issued the British public loans of his period, always
unloading them, of course, on the public at a higher
price than he paid for them to the British Treasury.
When he had sold the stock he was not content, but
must needs juggle the market, depressing it with false
rumours, then purchasing back the stock ; and then
again disseminating good news and elevating the
market, he would sell the stock once more, and reap
He was not much given to boasting, old Nathan, but
his 20,000 capital, he said, had become multiplied
2500 times in the course of five years, and he is said
to have nearly made 1,000,000 sterling out of early
news of the result of Waterloo. He stuck to public
debts mostly European and seldom ventured into
joint stock speculations among the lesser jackals of
the money market.
Yet now and again he went into commerce, if he
could get a monopoly, as, for instance, when in 1832
he purchased both the Spanish and Austrian quick-
silver mines, and doubled the cost of mercurial
preparations to the sick and the suffering of all
But despite all his millions, it is said of him that he
never c paid his employees a farthing morethan was
necessary for their bare subsistence or at least not
one farthing more than they could compel him to pay.' *
Ahd when he died, not a legacy to an employee, not
a single charitable bequest !
Public curiosity was never satisfied about the extent
of his fortune, and his executors were directed by his
will to confine themselves to their administrative
1 Martin, Stories of Banks and Bankers.
FOREIGN LOAN PANICS 13
duties and not to seek to pry into matters with which
they had no legitimate concern.
His son and successor, Lionel de Rothschild,
financed no fe\yer than eighteen British Government
Loans, French and Italian railways, and Disraeli's
Suez Canal speculation, out of which last-mentioned
deal, he, Rothschild, netted 100,000. Elected for
the City of London to Parliament in 1 847, he could not
take his seat because he refused to take the Parlia-
mentary members* oath on the c true faith of a
Christian,' and it was not until 1858 that the oath was
amended and he could sit at Westminster.
And it is rather a joke that Lionel de Rothschild
lost his Parliamentary seat in 1874 because of his
temerity in opposing Gladstone's proposal to abolish
the income tax. Rothschild wanted the substitution
of some fresh tax upon the wealthier classes to take the
place of income tax. But his constituents in the City
of London would have none of it, and so they parted
company with their multi-millionaire banker repre-
THE GREAT RAILROAD RAMP
* What error in railway legislation is it, that has made possible
such complicated chicaneries ? ' HERBERT SPENCER, * Railway
Morals and Railway Policy,' Essays, vol. iii.
TOWARDS the tail end of the foreign loans panic
of 1835-6 there was a sudden spurt of extravagant
speculation in the home market. Perhaps it was the
reaction from foreign lending and the defalcations
abroad that had turned the attention of the financial
promoters to British industries again. But between
January and November of the year 1836 there were
no fewer than 42 new Joint Stock Banks floated in
Britain to cope with new commercial ventures, and
three-fourths of these Joint-Stock Banks issued their
own notes, the total currency of the country being
increased in one year by over 50 per cent., and we are
told that * every newspaper teemed with prospects of
commercial venture of the wildest kind.' l But the
boomlet was short-lived. Soon there was a run upon
these mushroom banks and another commercial crash,
and thousands of families were ruined. Scarcely,
however, had the reverberations of this crash passed,
fere the money-lenders were again engaged in pouring
what depositors' money they could lay their hands
upon into railway development schemes, often of the
most absurd and fantastic kind. Railway Company
shares were grossly inflated in value ; projects worth
1 The Annual Register for 1837.
THE GREAT RAILROAD RAMP 15
absolutely nothing were sold and resold at swollen
prices during the next decade until 1847, when the
whole edifice toppled over again, and in ten railway
corporations alone the unfortunate shareholders lost
no less than 78,000,000 sterling.
The leading figure among the Railway Kings in
the first half of last century was George Hudson,
who operated upon our grandfathers and grand-
mothers with the same sang froid and effrontery
that Hatry and his like have operated upon this
Hudson was born at Howsham, near York, in 1800.
His father, a farmer, apprenticed him to a firm of York
drapers, where he subsequently acquired a partnership.
By the time he was thirty-seven years of age he was
Lord Mayor of York. He became a pioneer of railway
company promoting ; saw the advantages of amal-
gamating smaller systems, and was appointed chair-
man of the combination which in time developed into
the Midland Railway Company.
By the year 1844 he was popularly known as the
c Railway King ' ; he had 1016 miles of railway under
his supervision ; and when Mr. Gladstone introduced
to Parliament a proposal to nationalize the railways,
the opposition was led and organized by this plutocrat
promoter from the north. He had reached nodding
terms with the Prince Consort, and the aristocracy
flocked after him for pickings ; he had become
Tory M.P. for Sunderland, having defeated the
Cobden-Bright party and their nominee, Colonel"
Perronet Thompson ; and the London Times
regarded his election as of such paramount import-
ance that it ran a special train to London with the
At the height of his appropriations he is said to have
l6 THE FINANCIERS AND THE NATION
accumulated property worth 1,500,000, including a
princely residence at the Albert Gate, London. By
paying dividends, out of the shareholders' capital in
concerns which before his control hacj paid nothing,
he achieved considerable temporary popularity among
the shareholders, and his unconscious victims in the
Eastern Counties' concern actually got the length of
proposing a national testimonial of thanksgiving to be
expended upon a statue of the dividend-producer,
whom, so they said, ' future generations would
admire ' !
But this statue business was too much for Thomas
Carlyle, and so excited his wrath and ridicule that he
exploded in scathing, scorching terms in his Latter-
Day Pamphlets. c This big, swollen gambler,' he wrote
of Hudson, c has only produced scrip out of which
profit could be made ' ; and he likened him to one of
those American ' overgrown monsters of wealth . . .
who have made money in dealing with cotton, dealing
in bacon, jobbing scrip . . . glittering man moun-
tains filled with gold and preciosities ; revered by the
surrounding flunkies, 5 and so on. Carlyle loathed
him and all his kind.
Towards the end of 1847 came the inevitable collapse
in railway finance.
Borrowing reserves to pay dividends, paying divi-
dends out of capital while the shareholder^ believed
the dividends were corning from profit, issuing bogus
shares and such-like trickery, could not go on for
ever, and, when the inevitable exposure came,
the swollen values of the British railways were
punctured, and thousands of people were ruined.
The various Committees of Investigation which
were set up subsequently reported between them
that, one way or another, Hudson owed the
THE GREAT RAILROAD RAMP 17
Companies over half a million pounds. His liabilities
The Great North of England. (Money borrowed) . 11,292
East and West Rising Shares .... 96,000
Landowners' and Contractors' money due. (Cash
drawn by Hudson, but accounts unpaid) . . 68,479
North British Company ..... 62,267
Iron rails. (Selling to his own company iron rails at a
huge profit. He bought the iron rails at 6 los.
and sold them to the railway company, of which
he was Chairman, at i 2 per ton) . . . 66,203
Sunderland Docks ..... 41,000
Profit on Newcastle and Berwick Shares . . 149,704
(On the amalgamation of the Newcastle and Berwick
Railway Company with the Newcastle and North
Shields Company he had secretly increased the author-
ized issue of shares by 14,000 and had c made no entry
of the fact in the account books ' ; the shares were at a
premium, and upon that deal alone he had pocketed
Brandling Junction. (New shares which he voted to
himself at 2 1 premium) .... 42,000
Hull and Selby shares ..... 42,000
The shock to the investing public of the exposure of
the rascalities and rogueries of the Hudson type of
railway promoter in 1847 was so serious that railway
shares became unsaleable at any price.
Singularly enough, when in 1847 Hudson's com-
panies ceased to pay dividends, and when angry share-
holders' associations proved against him fraudulent
appropriation, bogus balance-sheets, and other mal-
practices, he was not criminally prosecuted.
Many years later, in 1865, he was indeed, sentenced
to nine months' imprisonment in York Castle for con-
tempt of the Court of Exchequer in not paying a large
18 THE FINANCIERS AND THE NATION
debt for which judgment had been given against him ;
but for his wholesale and retail malfeasance among
the railway stocks and shares he was never charged in
a Court of law.
The chairman of the Eastern Counties Railway
Shareholders' Committee of Inquiry was a Quaker
called Cash, and the following rather quaint dialogue
took place between Cash and Hudson when the
millionaire was being examined. It was at this in-
quiry that Hudson was proved guilty of having paid
dividends to the extent of 300,000 out of the capital
of the Eastern Counties Company.
Mr. Cash : ' George Hudson, wilt thou take a seat ?
As thou hast the financial department of this company
under thy especial control, thou art required to
answer a few questions which the committee will put
to thee. Didst thou ever after the accountant had
made up the yearly accounts alter any of the figures ? '
Hudson (after hesitation) : * Well, I may perhaps
have added a thousand or two to the next account. 5
Cash : ' Didst thou ever add ten thousand pounds ? '
Hudson : ' Ten thousand ! That is a large sum.'
Cash : ' It is a large sum, and that is the reason why
I put the question to thee. Wilt thou give the com-
mittee an answer, yea or nay ? '
Hudson : ' I cannot exactly say what may have been
the largest sum I carried to the following account.'
Cash : c Perhaps, George Hudson, thou couldst
inform the Committee whether thou ever carried to
the next account so large a sum as forty thousand
pounds ? '
Hudson : ' Oh, I should think not so large a sum
as that ! '
Cash : ' But art thou sure thou never didst . . . ?
George Hudson, take the questions home with thee
THE GREAT RAILROAD RAMP ig
and send written answers to the Committee at thy
Whether Hudson ever found it convenient to supply
detailed particulars of his fraudulent balance-sheets
I know not, but he seems to have treated all these
angry victim shareholding Committees with the most
Hudson was chairman, not only of the Eastern
Counties, but also of the Midland, the York, Newcastle
and Berwick, and the York and North Midland Com-
panies, and from each he had borrowed the reserves
to pay dividends and keep up the price of the stock in
the market. Yet, albeit he was a large-scale rogue
and reckless speculator with the savings of lesser folk,
it must be said for him that he was a born business
organizer, who succeeded (partly, it is true, by bribery
and fraud) in linking up and amalgamating dozens of
small competing railway lines into large units, and
making effective national scale transport possible.
There were, of course, other rogues and rascals
besides Hudson responsible for the commercial de-
pression and ruin of 1847. Indeed the whole business
system seems to have been honeycombed with them,
and the wreckage of their depredations was every-
where. The Annual Register for September 1847 tells
us that the failures of commercial houses were ' almost
unexampled ' and the Government stocks fell by one
and sometimes two per cent, in a single day ; railway
shares * were, in fact, unsaleable.'
In October 1847 the failures continued, including
six banks ; Government Stocks fell to 79^, which
meant a drop of one-fifth in the total capital value of
gilt-edged investments ; the commercial credit of the
country was * threatened with total destruction,' and
the Prime Minister, Lord John Russell, sent a letter to
20 THE FINANCIERS AND THE NATION
the Governor of the Bank of England urging him to
issue credits at 8 per cent., and promising a Bill of
Indemnity for whatever currency the Bank issued over
the limit allowed by law.
In November 1847 there were continued commercial
failures, including three banks, but by December the
fury and the fear had somewhat spent themselves, the
Bank of England's inflation policy was producing
effects, and in some industries there was sign of
But not for the railways. No ; there the scandals
stank to Heaven, and if any one in 1847 had proposed
to invest a sixpence in the morass of railroad finance
his relatives would have had him medically examined.
First the promoters, the landlords, and the Parlia-
mentary lawyers had plundered and robbed the rail-
way concerns ; then the financiers had arrived, and
the result of their manipulations with railway stock
had been such that it had become absolutely unsale-
able ; hundreds of thousands of families were ruined,
and there ensued such widespread devastation and
panic as the country had not seen before nor even
including the depression in the years 1921-33 since.
' An' cheat like ony unhang'd blackguard.* ROBERT BURNS,
The Two. Dogs.
THE school history books tell us little or nothing
about the Truck Acts, or of the prolonged agita-
tions in the industrial towns which compelled the
House of Commons to pass that series of measures
for the enforcement of wage contracts and for ensuring
the payment of wages in current coin, and the right of
the wage-earner to spend his money in markets of his
The subject is of considerable importance, for until
the grosser evils of the Truck system had been struck
at by Parliament, the Go-operative trading system, as
we know it to-day, was really impossible of operation.
The oldest form of Truck was one against which
we find legislation in the year 1465 ; at that time
Parliament had approved of regulations designed to
prevent Trucking (and consequently ' tricking ') of
makers of.cloth in London whereby, as the preamble
to the Act has it, the workmen * have been driven to
take a great part of their wages in pirns, girdles, and
other unprofitable wares. 5
And, indeed, so late as 1849 we can trace this species
of truck rascality in the clay pipe trade at Glasgow,
where the workmen who manufactured clay pipes
for the smoking of tobacco had to take their wages
at the week-end in the form of a basket of clay pipes,
22 THE FINANCIERS AND THE NATION
and were compelled to spend their Saturday evenings
selling the pipes in the streets to get their wages.
Oftentimes they had to sell at a considerable sacrifice.
But the most widespread and the most hated
form of Truck robbery during last century lay in
the practice of compelling workmen to spend their
wages at a particular shop or store. The early
industrial capitalist having gathered workers into
his factory or his mine, was not content with the
profits he made in his industrial processes, but he
must needs set up, adjacent to his work, a store where
he retailed food, clothes, Bibles, whisky, etc., at
ruinously high prices to his employees. He insisted
upon a monopoly for his store, and he was prompt in
discharging from his employment any independent
workman who (or whose dependants) purchased
household necessaries elsewhere.
This monopoly shop system was in full swing in
the iron and coal districts in the late 'sixties of the
nineteenth century. Wages at that time were on a
monthly basis (sometimes, as at Dudley among the
nailmakers, on a three-monthly basis) and advances
known as c subs? to keep the workman and his family alive,
were charged at rates of interest varying from 125 per cent,
to 900 per cent, per annum., the employers arguing
that the more pay-days there were the more de-
bauchery there must be. Thus for a lo?n of part
of what they had already earned, men paid an un-
conscionable usury. And, furthermore, the evidence
given before the Commission of Inquiry (and there
were lots of inquiries into the matter) was consistent
and emphatic that the price rates in the employers'
store was normally some 20 per cent, higher than
outside prices ; in Staffordshire they were actually
40 per cent, higher.
TRUCK TRICKS 23
Truck shop goods were of inferior quality ; but
the frequent complaints by the workmen in that
respect were only a beating of the air. The Truck
shop managers, secure in their monopoly and selling
inferior goods, regularly engaged in a little extra
robbery by short weight and adulteration, whereby
some of them left at death personal fortunes of
10,000 ; and any nasty protests from the purchasers
were speedily dealt with by the sudden unemploy-
ment of the protesters.
In 1870 the Truck Act Commissioners reported that
' Even the paupers were trucked by the Poor Law Inspectors,
who kept shops and served them with goods instead of money.'
In the Black Country the nailmaker was compelled to
buy his metal from men who were called pettifoggers,
and who owned liquor shops ; if the nailmaker did
not drink in the pettifogger's shop he got no metal.
In the 'sixties of last century even the proprietor of
the great steel works at Mossend, Lanarkshire, being
himself a Justice of the Peace, saw to it that no liquor
shop other than that at his own works was per-
mitted in the neighbourhood ; to his industrial
profits he added profits on the monopoly vending
of alcohol to his employees.
On pay-days a small handful of coins sufficed for
hundreds of men. The pay office window would be
adjacent to the store, and when the first workman
in the queue was paid his wages he had to go immedi-
ately to the store window to pay his debts for the
month ; the store-keeper then handed back the money
to the pay clerk at the wages window, whereupon, but
not until then, the second man was paid his wages.
And so on down the queue.
24 THE FINANCIERS AND THE NATION
Everything the workman bought was trucked
his food, his beer, his coffin and the quality may be
guessed. The schoolmaster and the doctor were
often appointed by the employer and. trucked to his
workmen at a profit. The Hammonds l tell us that
sometimes the employer even provided the church
for his workmen. Until recently in Scotland there
were colliery villages where the road of approach
to the village was chained off to prevent grocers'
and butchers' vans from invading the coalmasters'
Girls employed by the fishcurers frequently had
to take their wages in fancy goods which they did not
want goods the storekeeper could not dispose of
The worsted in a Shetland shawl which sold at
26s. was worth from ss. to 33. ; and while the girls
nominally got gs. for making the shawl (which brought
the cost of the shawl to, say, iss.) they were com-
pelled to take their nominal gs. wages in goods worth
only 43 .
That was Truck in its most impudent and irritant
form ; and, of course, so long as it obtained, and
where it obtained, there could be no Co-operative
store. But there were still other ingenious Truck
devices whereby certain employers sought to divorce
the workman from his wages ; for example, there
was a common practice of arbitrary fines and
deductions from wages based upon all sorts of
amazing pretexts, so that the workman seldom knew
whether he would or would not receive any wages
William Cobbett 2 gives us a list of the fines then in
1 The Town Labourer, p. 412.
2 The Political Register, 1823.
TRUCK TRICKS 25
operation at the Tyldesley Mills, where, he asserts, the
heat was from 80 to 84 degrees :
Any spinner found with his window open . . .is.
Any spinner found dirty at his work . . . .is.
Any spinner found washing himself . . . .is.
Any spinner leaving his oil-can out of its place . . 6d.
Any spinner putting his gas out too soon . . .is.
Any spinner spinning with his gas-light too long in the
morning . . . . . . . 2s.
Any spinner having his lights too large (for each light) . is.
Any spinner heard whistling . . . . .is.
Any spinner being sick and cannot find another spinner to
give satisfaction must pay for steam per day . . 6s.
In this particular mill, says Cobbett, the employees
worked fourteen hours per day with the doors locked.
Again there is upon record in the year 1869, the
case of an Aberdeen firm where the hours of toil for
the employees were fixed as from 6 a.m. to 6 p.m., ' and
also such additional hours as may be required ' ; the
firm levied a deduction of 2s. per employee as a
guarantee of good behaviour ; and if the worker
broke his engagement or was disrespectful, unsteady,
or intemperate, he was fined 2, and in addition his
savings, if any, were confiscated by the employers.
Shipyard workers on the Clyde were fined is. for
talking during working hours ; and for every two
hours' abaence from work c except in cases of sickness,
of which previous notice must be given? they had to pay
one-fourth of a day's wages.
The colliers were systematically cheated at the
weighing tables ; and in Northumberland and
Durham in 1825, when a hewer's corf or basket was
weighed, the whole basket was confiscated by the
employer if any * deficiency ' was discovered ;
deficiencies were frequent, and there were complaints
26 THE FINANCIERS AND THE NATION
by the men that the standard measure was frequently
George Howell l tells us of iron workers at Gradley
in 1844 w h had only an average wage of los. per
week, and even that was subject to deductions,
Parliament legislated (or pretended to legislate)
almost continuously against these impudent and
rascally supplementary exploitations of the workman.
Between 1665 and 1825 there were no fewer than
thirty-six Acts of Parliament having reference to
Truck and wages, but the Justices of the Peace
authorized to enforce the laws were themselves often
the employers involved, and they only enforced what
law suited them. Indeed the Hammonds say 2
that the Justices, so far from enforcing the Truck
Acts against employers, actually used the Vagrancy
Act in order to punish workmen who had the hardi-
hood to make complaints against their employers
under any of the Truck Regulations.
1 Labour Legislation (i. 124).
2 The Town Labourer, p. 67.
* ... borrows money in God's name, the which he hath used
so long and never paid, that now men grow hard-hearted.'
NO record of financial and banking exploitation
in the middle of last century would be complete
without reference to the great Globe Assurance frauds
and to the widespread embezzlements of money by
highly-paid thieves in the banking world during that
period. In the year 1844 Walter Watts, a 200-
a-year clerk in the bank pass-book department of the
Globe Assurance Company, suddenly blossomed out
as a leader in high finance ; he appeared to have
almost unlimited money to burn ; his establishments
and recreations were of the most luxurious kind for
example, he maintained two London theatres, the
Marylebone and the Olympic in the Strand and it was
given out that he had been a fortunate speculator
on the Stock Exchange, his good fortune arising from
secret information given him by his friend, King Louis
Phillipe of France !
It was certainly curious that this plutocrat should
still retain his clerkship with the Globe Company ;
but there you were ; who could comprehend the
freakish vagaries of the great ?
And from 1844 to 1849 Walter Watts was an
accepted leader of fashion and a patron of the beaux
arts, expending, it was afterwards estimated, about
28 THE FINANCIERS AND THE NATION
700,000 upon his foibles. But in 1850 came the
dramatic announcement that the sources of his income
were fraudulent, and that he had been arrested.
With great hauteur he denied the charges preferred
against him ; these, he said, were but the scurrilous
and envious yelpings of unsuccessful men ! Never-
theless a firm of accountants produced evidence of
fraud and forgery by Watts on the grand scale, and
he was sentenced to transportation for ten years the
sentence, however, never being carried out, for Watts
managed to hang himself in the lavatory at Newgate.
The report of the accountants to the Globe Assur-
ance Company has not been published, and doubtless
there was good reason enough for withholding from
the public a report necessarily in condemnation of
the stupidity and slackness of the Globe office arrange-
ments, which permitted Watts to engage in his frauds,
and for such colossal sums, and over so long a period.
But sufficient information leaked out in the trial to
enable us to understand Watts' modus operandi.
It appears that the books of the Company were
based upon the bank pass-book, which Watts kept ;
if false entries appeared in the bank pass-book then
these false entries were in due course transferred
to the other books of the company.
If the bankers cashed a Watts' cheque for 554 ios
for, say, Annuity Policy number 6, and entered this
554 ios. in the bank pass-book, Watts would after-
wards erase the 55, thus making it appear as if the
cheque drawn was one for 4. ios. only. And in order
to make detection more difficult he would enter the
Annuity Policy number as 64, by adding the figure
4 to the figure 6.
But there was 550 to cover up, so Watts searched
for some trifling fire loss, perhaps one for 7 ios.
THE VULTURES 29
which had been passed for payment, and by prefixing
to the 7 i os. the figures 55, he made it appear that
the sum of 557 ios. had been paid upon the fire
It is difficult to see how forgery and jugglery like
that could escape detection for years, especially
when Watt's mode of living was so notoriously extrava-
gant ; but the accountants were a long time in
unravelling the skeins, and, indeed, it is not clear
that the learned Judge who tried the case under-
stood, any more than we casual readers do to-day
the whole process of double shuffle and cross-entry
by which young Watts he was only thirty-three
years of age managed so cleverly and so brazenly
to plunder the Globe funds.
There must indeed have been great contributory
negligence and carelessness in the office, and swingeing
fat profits, to enable the shareholders to draw their
dividends and Watts his plunder for so long with-
out bringing the office down in ruins.
Other large-scale finance thieves caught in the act
in the middle of last century included Sir John Paul,
the banker who was one of the leaders in the Evan-
gelical Party in the Church of England. His banking
firm, Strachan, Paul & Bates, failed in 1855 f r
750,000, and the three partners, after being proved
guilty ofi embezzlement and forgery, were each
sentenced to fourteen years' transportation.
And there was the case of the Royal British Bank,
which was started in 1850 and collapsed in 1856.
Two M.P. Directors of the Bank, Mr. M'Gregor for
Glasgow and Mr. Humphrey Brown for Tewkesbury,
appear to have helped themselves on a pretty generous
scale to the bank funds. Mr. Brown deposited only
the insignificant sum of 18 148. and on the same day
30 THE FINANCIERS AND THE NATION
that he opened his account he borrowed 2000 upon
his note of hand. This 2000 grew steadily until it
became 70,000. When the institution failed after
six and a half glorious years, the shareholders' 158,000
had gone and there were net losses of 250,000 to the
depositors, plus the expenses of winding up.
But the maximum punishment meted out to these
well-circumstanced banking rogues was only one
Then there was the case of John Sadleir, Junior
Lord of the Treasury, banker and speculator, rogue
and forger, who committed suicide in 1856 at Hamp-
stead. When he crashed, thousands of poor investors
and bank depositors inquired anxiously whether
there was to be anything left out of the wreck of their
savings and investments. But an unknown feudalist
calling himself the Lord of the Manor of Hampstead
claimed that he, the Manorial Lord, under his old
mouldy charters was entitled to all the goods and
estates of persons who chose to commit suicide within
his territory of Hampstead ! What the financiers had
missed, the feudal landowner annexed.
First appearing in 1847 as a Dublin solicitor, M.P.
for the borough of Carlow and as agent for many
Irish estates, Sadleir seems to have secured large-
scale loans upon what, as afterwards transpired, were
forged title-deeds. But he was apparently a man
of wealth ; he became a specialist in Parliamentary
Bills during the railway mania ; and being abso-
lutely trusted by the Irish priesthood, was charged
with considerable operations in real estate on their
In due course he became chairman of the Royal
Swedish Railway Company, Director of the East
Kent Railway, and joint manager of several others ;
THE VULTURES 31
and was selected as chairman of the London County
Bank and the Tipperary Joint Stock Bank.
In 1853 (for his Parliamentary promotion was
rapid) he was appointed a Junior Lord of the
Treasury in Lord Aberdeen's Ministry, and promptly
threw overboard his Catholic Church affiliations, they
being now a hindrance and not an aid to him.
How his financial defalcations and forgeries first
became suspect is not clear, but by the year 1856
he had been publicly exposed as a callous rogue and
as a wholesale forger of title-deeds and manufacturer
of fictitious shares, and as an utterer of worthless
paper money in Ireland. After these exposures he
committed suicide. His Tipperary Bank failed for
400,000 ; the Royal Swedish shares which he fabri-
cated were known to amount to 150,000 ; and the
sum-total of his defalcations must have been enormous.
But his case is specially interesting in the records of
Big Money, neither for the method of his acquisitions
nor for their amount, but for what happened to his
bank pass-book after his suicide.
At the inquest on March n, 1856, the Coroner
of the Queen's Household, Mr. Manning, appeared
and intimated the feudal claim to Sadleir's estates
This, he said, was a case of suicide and the body
was found^ in the Manor of Hampstead ; by letters
patent given by King Edward VI, the Lord of the
Manor was entitled to :
' All chattels waived, estrays, goods, and chattels
of felons, fugitives, persons outlawyed and put in exigent,
or in any other manner whatsoever condemned or con-
victed, felons of themselves and deodands*
The whole of Sadleir's e-oods and chattels, and
32 THE FINANCIERS AND THE NATION
every right he possessed except his estates of inheritance,
declared the Queen's Coroner,
* would go to the present Lord of the Manor of Hamp-
stead within which the body of the deceased was found
. . . and these rights would go too, to the exclusion of
creditors ' /
And that in all the records of shameless and impudent
theft must surely be the very last word. It is un-
We have already noted the railway finance crash of
I847. 1 Scarcely had its reverberations died away, ere
there began another series of banking failures, bringing
again in their wake widespread ruin and devastation.
The panic of 1857 originated, so declare the con-
temporary writers, in the United States ; but our
British banks and commercial houses had over-
speculated on their own accounts, and when nervous-
ness spread and loans were called in, the whole
British edifice went smash again.
The Borough Bank of Liverpool failed with liabilities
of 5,000,000, the Western Bank of Scotland with
liabilities of 8,911,000, the Northumberland and
Durham Bank with liabilities of 3,000,000, the
Wolverhampton Bank with a liability of 1,000,000,
and the City of Glasgow Bank with liabilities of
Wednesday, November n, 1857, was called Black
Wednesday, for on that day the City of Glasgow Bank
shut its doors, and everywhere commercial houses of
long standing and good reputation were intimating
inability to meet their debts. In London city,
Sanderson, Sandeman & Co. failed for 5,500,000 ;
1 P. 19-
THE VULTURES 33
the Baltic trade collapsed ; many trading houses
disappeared altogether, and between September 7
and November 12, as Mr. Disraeli ruefully announced
in the House of Commons, eighty-five firms closed their
operations with liabilities totalling no less than
And once again the Bank of England issued notes
this time to the extent of 2,000,000 in excess of its
legal limits, in an endeavour to boost trade and stem
the financial panic.
The story of the closing forty years of last century
is the story of the preceding sixty years already
described. Alternating booms and slumps ; crooks
with prospectuses of glittering gains to be had from
investments at home and abroad ; the savings of
thousands of families periodically swept away by
cheats and frauds operating as company promoters
and investment bankers.
There was, for example, an appalling crash, with
widespread misery resulting, in 1866-7, an d again
it had come in the backwash of a period of extravagant
speculation and gambling. The shares of the Great
Northern Railway fell in three years (1864-7) fro m
135 to 104 ; Great Western shares from 78 to 43 ;
London and Brighton shares from 103 to 51. In that
year the Court of Chancery was blocked with the
liquidation of bankrupt companies ; Liverpool was
said to be almost cleaned out.
In the late 'sixties, too, further exposures were made
of balance-sheet faking by the railway companies ;
the accounts of the North British were described by the
Edinburgh Review as ' receptively manipulated,' the
Great Eastern and the Great Western were c in serious
financial straits ' ; the London, Chatham, and Dover
34 THE FINANCIERS AND THE NATION
was insolvent. Overend, Gurney & Co., the bankers,
failed with liabilities of 19 millions. Ruin and de-
vastation swept the land, and for the third time in
23 years the Bank Charter Act of 1844 had to be
broken and the Bank of England ordered to issue notes
in excess of its legal powers. And again, as in 1847
and 1857, the increased buying-power succeeding in
restarting the wheels of trade.
In 1875 Parliament had to appoint a Select Com-
mittee, Sir Henry James, M.P. for Taunton, presiding,
to inquire into the methods by which our financiers
had been giving loans to foreign states. In the three
previous years it was estimated that some 60,000,000
of British money had been lost in foreign speculation,
and Sir Henry's Committee trailed out a mass of fraud
and chicanery in high places in the money market,
that shocked for a time the simpler-minded British
The Committee examined the circumstances of the
issue of four groups of public loans one group to
Honduras 1867-70, one to Costa Rica 1871-2, one to
Paraguay 1871-2, and one to San Domingo 1869.
All had defaulted and not a single penny of capital,
much less interest, had ever been repaid. And, in-
deed, it was little wonder, for, as the Committee dis-
covered, upon some of the loans the financial promoters
in London had netted a commission of 30 or even
30 per cent, for a beginning, ' the miserable balances after
this being still further attenuated by percentages and charges
under every conceivable head.' Thus, for every 100
they borrowed some of the States were lucky if they
Sir Henry James denounced the financial vultures
in London as * powerful and unscrupulous ' and as
* a band of conspirators ' : in turn they threatened
THE VULTURES 35
him politically and financially ; they terrorized the
Press into all but suppressing comment upon the
evidence before, and the report of, the Committee ;
and to this day there is hardly a public library where
either evidence or report is upon offer.
The report was smothered, and nothing was done
by Parliament to safeguard the investor for the future
or to eliminate the panics and crises resultant from the
amazing plunder in these foreign loans.
Repeated attempts have been made by our financial
houses to secure the aid of the British Navy in collect-
ing their debts, the most glaring case this century being
in 1903, when the State of Venezuela defaulted ; the
bondholders of Germany, Great Britain, and Italy each
brought pressure upon their Governments, and their
joint naval forces were soon on the Venezuelan coast ;
they sank ships and shelled ports, and, says the staid
and sober Cambridge Modern History l : ' It would
have fared ill with Venezuela if the United States had
not intervened ' and issued the announcement that
no seizure of Venezuelan territory would be recognized
by the United States. So the Three-Power Finance
fleet had to put to sea again, and the financial griev-
ances of the money-lending houses of Berlin, London,
and Rome were settled at the Hague, the Cambridge
Modern History dryly adding that :
' where tens of thousands were asked for at the cannon's
mouth, only hundreds were allotted.'
It is an amazing story that affair on the Venezuelan
coast, with British Naval commanders at Puerto
Cabella and La Guaira claiming 30 per cent, of the
customs receipts for the European investors ; and
the Press Association's correspondent in Trinidad
1 Vol. xii. 695.
36 THE FINANCIE RS AND THE NATION
sending home hot press messages that Venezuela was
' in sad need of a little chastisement/ and poor Mr.
Balfour, our Prime Minister, very shamefaced about it
all, explaining to a Liverpool audience that our ' war-
like operations ' would be * as absolutely harmless '
as possible ; and the British and German admirals unable
to sail away until they got a cash payment to account,
the British accepting 5500 cash down, and the Ger-
mans being finally placated with promises of 76,000,
which they agreed should be ' paid in instalments.'
And so boom and slump, slump and boom has gone
on, decade after decade, the severance of fools from
their money. As every fresh crop of small accumu-
lators saved sufficient to invest, and looked around
hopefully for some ' certain security ' with an adequate
interest yield, lo ! always there opportunely appeared
some plausible leader of finance with a get-rich-
quick scheme, casting it before his victims as an angler
casts his flies for trout.
Perhaps our most impudent angler for the savings
of gullible folk in the closing years of last century was
Ernest Terah Hooley.
He was a pioneer of the modern method, and there
are few more entertaining and informative volumes
than Mr. Hooley's Confessions, 1 where the author tells
all who care to stop and listen of how the skin game is
He began as a lace manufacturer in Nottingham,
branched out into company promoting, and went to
London in the year 1895 with a fortune of 100,000,
determined to make it a million.
He made his fortune more than a million ; indeed,
he estimates that at one point in his career it reached
1 Simpkin, Marshall, Hamilton, Kent & Co.
THE VULTURES 37
to seven millions. But that was the peak, and he then
slid downwards, went bankrupt three times, and was
twice imprisoned for fraud.
His modus operandi was to purchase a sound, prosperous
company, and refloat it upon the public as a great
limited liability concern, securing to himself colossal
sums for goodwill, &c.
His first big purchase was the Dunlop Tyre
Company, which he bought for 3,000,000, and
refloated for 5,000,000, making 2,000,000 on that
one transaction. Similarly he dealt with Schweppes,
Singers, and the Raleigh Cycle Company. In the
years 1896 and 1897, he promoted companies with a
combined nominal capital of 30,000,000. ' There
was/ he says,
* nothing criminal about these flotations, any more than
there is to-day. I bought a business as cheaply as I could, and
sold it again for the biggest price it would bring. Some people
might say that by this method I robbed the public of millions
of pounds, but, nevertheless, I did not do anything against
Quite so ; all perfectly legal. It is the finance
business system as operated under the recognized
Hooley boasts that he was the pioneer in the use
of noble ' guinea-pig ' directors as baits for the invest-
ing public?. ' When I bought the Dunlop business in
i8g6/ he says,
' I thought it would be a good idea to have some well-known
people on the board, and so I got hold of an Earl, now de-
ceased, and said to him : " Now, look here, I'll give you
1 0,000 for a Duke, and 5000 a-piece for a couple of ordinary
peers. I don't mind who they are, so long as they are fairly
well known." " Right you are, my boy," he replied breezily,
" It won't take me long to find the people you want."
38 THE FINANCIERS AND THE NATION
* Nor did it. He brought the late Duke of Somerset along
and another noble Earl. That was good enough for me. The
new company duly came out with its titled directors and was
a roaring success.'
Hooley became a member of the most exclusive
clubs the Carlton, the Badminton, and the Royal
Thames Yacht among them ; was entertained by
King Edward at Sandringham ; was appointed High
Sheriff of Cambridgeshire and Huntingdonshire ;
presided at the Assizes, and in cocked hat, gold braid,
and sword, got himself photographed with Mr. Justice
Grantham in his full legal regalia.
One of Mr. Hooley's most successful publicity
expenditures was his gift of a complete gold plate
Communion service to the Dean and Chapter of
St. Paul's Cathedral in commemoration of Queen
Victoria's Diamond Jubilee. The gift was accepted,
and when the Queen went to offer a thanksgiving for
her sixty years of reign, Hooley's gold plate was used
for the first time. The donor hopefully records :
' Coming events cast their shadows before, and the ticket of
admission which was sent to me for the ceremony was made
out to Sir E. T. Hooley, Bart.'
But that baronetcy was denied him in the end.
I wonder if the Bolshevik Government of Russia
have ever seen these Hooley Confessions. Inot, they
should study that delightful story of the Siberian
Goldfield Development Company Ltd., which Hooley
floated for 1,000,000 in the year 1900, after his first
Hooley alleges that he paid 75,000 to the proper
gentleman at the Russian Embassy in Chesham Place,
London, for the concession. Later the concession was
repudiated by the Tsarist representatives, whereupon
THE VULTURES 39
Hooley hastened back to Chesham Place, and was
informed that, * difficulties had arisen, but if just a
little sometings should come along. . . . ! '
Hooley understood, and came along with two bags
each containing 5000 golden sovereigns to the
Russian Embassy, and all was well, the Press being
informed next day that the previous notice repudiating
the concession had been due to a c misapprehension/
And one wonders if these Hooley Siberian Gold-
field Development Shares are included in the list
of debts which our Nationals have accumulated
against the present Government of Russia.
In his heyday Mr. Hooley kept a suite of rooms,
covering practically an entire floor of the Midland
Hotel at St. Pancras Station, as his business offices ;
and Meredith, in his book on The Drama of Money-
Making, tells us that in these palatial chambers some-
times as much as 500 was paid for an audience with
the Great One !
Princes of the blood royal were his intimate friends,
and half the nobility of England were trying to culti-
vate his acquaintance as a means of replenishing their
old oak chests. When he first crashed in 1898 with
debts of 1,500,000 and assets of 369,000, Hooley's
bankruptcy proceedings provided the finest sensation
of the year. It was alleged that the blue-blooded
aristocrat^ leeches had sucked him dry ; one fine
gentleman who had assisted him in his company
promotions had got away with 100,000 ; and a
noble earl who had taken the chairmanship of
one of his reconstructed companies had graciously
accepted a douceur of 25,000 for himself, and had
been given 25,000 for distribution among 'the others 3
presumably the remaining guinea-pig decorative
40 THE FINANCIERS AND THE NATION
In his evidence before the Official Receiver, Hooley
said that another peer ' ought to have had half,
but I think he did not know what half was.' He
declared that he (Hooley) had given 1250 to evening
papers so that they * should not say anything bad '
about his companies. When he had formed the
Dunlop Pneumatic Tyre Company of France he
declared that he had given a noble lord 11,300
for joining the Board, and a cheque for 1000 for
' squaring the newspapers.' When the Singer Cycle
Company was formed, he alleged he gave one peer
2000 for introducing another. When he refloated
Bovril Ltd., his apparent profit on the deal was
468,000, but, alas ! his real profit was only 30,000,
so extensive were his expenses and procuration fees ;
as an illustration of his costs, he declared that two of
the old Bovril directors had insisted upon receiving
Hooley had been elected to the Carlton Club in
1896, and he told the Official Receiver that he had
paid a gentleman called Sir William Marriott a corn-
mission of 1000 for aiding or securing his election.
This reason for the 1000 cheque was later hotly
denied in the witness-box by Sir William, who declared
that the money was really payment for other business
But there seems to have been no dubjety about
the acceptance by Lord Abergavenny of two Hooley
cheques of 5000 each for the Tory Party war chest. 1
And Hooley further testified that he had offered
35,000 for a baronetcy, but had been told that the
matter could really not be arranged for less than
There is a story half-told in the Hooley Confessions,
1 Times report, 3/11/98. 2 Times, 15/11/98.
THE VULTURES 41
and half-told in the Bankruptcy Court, of how Li
Hung- Chang in China sought to borrow sixteen millions
sterling from Hooley. Li wanted the money to crush a
revolution which was brewing in China, and in return
he was prepared to give Hooley and his syndicate
(The Hooley-James group) a complete monopoly of
the Chinese cotton trade.
The Rothschilds and the Barings were furious at
this interference with their preserves, and apparently
they brought strong pressure to bear upon the Foreign
Office to have the Hooley-Chang deal prevented.
Finally Hooley was informed that under no circum-
stances need he look to the British Government to
guarantee the security of any loan he might give to
China. In this Hooley-Chinese cotton syndicate
Lord Ashburton had 30,000 shares ; but the one
Chinaman who was a member of the Board to
give the thing a realistic touch had to be content
with 5000. And there was a speculator called Hill,
who apparently did not come well out of the business,
as Mr. Hooley later testified, with engaging frankness,
in his bankruptcy proceedings.
* He received 10,000 for 500 shares from Mr. Hill. The
result of the deal was that Mr. Hill received the shares, and he
received the cash.'
And that was Hooley company-promoting defined,
with brevity, with concision, and with comprehensive-
ness, by the Great Master himself! It is more than
Hooley company-promoting ; it is company-promoting
in general : the finance-business system by which
clever men relieve less clever men of their cash and
credit reserves. Mr. Hooley's distinctive contribution
to High Finance in this country lay, if I may use a
mixture of metaphors to describe it, in the lavish mani-
42 THE FINANCIERS AND THE NATION
pulation of aristocrat guinea-pigs as ground bait to
attract fools and their money. He drew up glowing
prospectuses, and always took care to plaster the front
page with the names of peers and baronets whom he
had induced to allow their names to be used as direc-
tors ; thus was secured the atmosphere of solidity
and safety necessary when investors are parting with
Mr. Hooley's precise and definite public allegations
at his first bankruptcy as to the fees exacted by some
of the aristocrat directors were naturally resented by
the noblemen concerned. The Annual Register for 1898
records that there * ensued a shower of indignant
disclaimers, many absolute, some partial, and some
One gentleman was
' proved to have made him (Hooley) an indirect offer of
money contemporaneously with an endeavour to obtain a
modification of his evidence, in such a fashion as to persuade a
Judge that he had committed the offence of contempt of
And it may be as well to place upon record what
The Times said in its review of the year (31 /i2/g8) :
' Several of these denials came to no more than this that
So-and-so had not received 10,000 for joining the Board, but
that soon after he had joined it Mr. Hooley made 10,000 for
him over a deal. 1 *
Hooley himself worried little about the bankruptcy,
declaring that, c Life went on with me after my smash
pretty much the same as before,' and * This matter of
going bankrupt is something that requires a little closer
attention than it has received in the past. To a Financier
such as myself it is not a bad idea almost once every ten years
to have a thorough clean up?
THE VULTURES 43
This sang-froid, this cynical, easy, almost uncon-
cerned attitude to the great finance scandals of
1898 was more than the victims and their friends could
stand, and on November 9, 1898, Lord Russell of
Killowen, then Lord Chief Justice, addressed some
stinging observations on commercial morality to the
City of London. He told the City that financial
fraud was ' rampant . . . fraud of a most dangerous kind,
widespread in its operation, touching all classes, involving
great pecuniary loss to the community, loss largely borne by
those who are least able to bear it. 9
He spoke of one case where a property alleged to
have been on the West Coast of Africa was sold for
48,000, when, in fact, there was no such property
in existence ; but how, after the sale had been effected,
an agent was sent out to buy a property for 140
from a native chief which was supposed to answer a
description of, and take the place of, the property
which had already been sold for the 48,000. He told
of another flotation of a business bought for 637,
and sold to the public as a company for 76,650.
But the storm blew past, and Hooley lived through
another two bankruptcies, and a prison sentence of
three years, after what was commonly called the
'Jubilee Mills Fraud.'
Hooley was the company promoter par excellence.
He never, troubled himself about the subsequent
management of the companies he promoted. ' I
floated them,' he said, ' got what I could out of
them, and let some one else nurse the baby.' And
after he came out of prison for the Jubilee Mills case
he wrote :
' Most people will have forgotten the astonishing boom
that took place in cotton mill shares immediately after the
44 THE FINANCIERS AND THE NATION
' Several people, with no more pretensions to honesty than
myself, made millions of pounds, selling mill shares which
were not worth a shilling apiece. But in Lancashire they
fought like madmen to buy them. Mills worth 10,000
were refloated with a capital of 200,000, and the lunatics
who bought the shares on this basis took it all lying down
when the inevitable crash came.
C 7 suppose fully 10,000,000 was lost in thu cotton
boom. If everybody had their deserts there would have been
a hundred other men put in prison?
What a system ! What a method of conducting a
great industry upon which the lives and fortunes of
hundreds of thousands of poor folk depend !
USURY ON THE GREAT WAR
* The investing public have been pandered to in a manner
altogether out of keeping with the times. . . . Victory can be
purchased at too high a price.' Glasgow Herald (4/10/16).
* The Imperial Democracy that held all the world beneath
its sway, from the senators who bore historic names down to
the humblest tiller of the soil, from Julius Caesar down to the
smallest shopkeeper in a back street of Rome, was at the mercy
of a small group of usurers.' Ferrero, Greatness and Decline of the
Roman Empire, vi. 223.
WHEN the whistle blew for the start of the Great
War in August 1914 the Bank of England
possessed only nine millions sterling of a gold reserve,
and, as the Bank of England was the Bankers' Bank,
this sum constituted the effective reserve of all the
other Banking Institutions in Great Britain.
The bank managers at the outbreak of War were
seriously afraid that the depositing public, in a panic,
would demand the return of their money. And, inas-
much as tjie deposits and savings left in the hands of
the bankers by the depositing public had very largely
been sunk by the bankers in enterprises which, at the
best, could not repay the borrowed capital quickly,
and which in several and large-scale instances were
likely to be submerged altogether in the stress of war
and in the collapse of great areas of international trade,
it followed that if there were a widespread panicky
run upon the banks, the banks would be unable to pay
46 THE FINANCIERS AND THE NATION
and the whole credit system would collapse, to the
ruin of millions of people.
Private enterprise banking thus being on the verge
of collapse, the Government (Mr. Lloyd George at the
time was Chancellor of the Exchequer) hurriedly
declared a moratorium, i.e. it authorized the banks
not to pay out (which in any event the banks could
not do), and it extended the August Bank Holiday for
another three days. During these three or four days
when the banks and stock exchanges were closed, the
bankers held anxious negotiation with the Chancellor
of the Exchequer. And one of them has placed upon
record the fact that ' he (Mr. George) did everything
that we asked him to do. 5 When the banks re-
opened, the public discovered that, instead of getting
their money back in gold, they were paid in a new legal
tender of Treasury notes (the i notes in black and
the i os. notes in red colours). This new currency had
been issued by the State, was backed by the credit of
the State, and was issued to the banks to prevent the
banks from utter collapse. The public cheerfully
accepted the new notes ; and nobody talked about
Not since 1697 had the State itself issued paper
money. In that year, 1697, notes in the denomination
of 5 were issued direct to the public without the inter-
vention of the finance houses ; and these notar were not
backed by gold but were legal tender for the payment
of taxes. In 1914, however, the State issue of money
was upon a colossal scale ; the legal tender was not
limited to the payment of taxes, but was complete
for all purposes, and the issue was made with the good-
will of the bankers and indeed at their plea and inter-
cession. Had that new money not been issued, the
private banking houses of Britain would have been
USURY ON THE GREAT WAR 47
compelled to default to their creditors in a week's time.
Dr. Walter Leaf, late Chairman of the Westminster
Bank and an ex-President of the Institute of Bankers,
has enlightened us as to the real effect of the issue of
Treasury notes under the Currency and Bank Notes
Act of August 6, 1914.
* The amount and manner of the issue* he declares,
' was left to the absolute discretion of the Treasury.
This was essentially a War Loan, free of interest, for
an unlimited period, and, as such, was a highly profitable
expedient from the point of view of the Government.' 1
He proceeds to argue that, to some extent, this State
issue of Treasury notes was covered by the gold coinage
which patriotic people exchanged for the notes ;
but there was no provision whatever in the Currency
and Bank Notes Act of 1914 for any gold backing,
and, in any event, the amount of gold coin reserved
for pretended security against Treasury notes totalling
some three hundred million pounds was, at its maxi-
mum, only twenty-seven million pounds. The three
hundred million of new money issued by the Treasury in
1914 was therefore, in effect, a War Loan, free of interest.
But, alas, when the War was over, the Treasury, by a
Minute issued on December 15, 1919, announced that
its policy was to be a gradual reduction in these
Treasury notes ; and it proceeded year by year to take
the notes off the Market, on the plea that the notes so
cancelled were not covered either by gold or by Bank
of England notes. Between the years 1920 and 1926,
there was a progressive reduction in Treasury notes
from 320,600,000 to 246,902,500.
1 Banking, by Dr. Walter Leaf, Home University Library,
48 THE FINANCIERS AND THE NATION
To return, however, to the early war period, no
sooner had Mr. Lloyd George got the bankers out
of their difficulties in the autumn of 1914 by the issue
of the Treasury money, than they were round again
at the Treasury door explaining forcibly that the State
must, upon no account, issue any more money on this
interest free basis ; if the war was to be run, it must
be run with borrowed money, money upon which
interest must be paid, and they were the gentlemen
who would see to the proper financing of a good, juicy
War Loan at 3! per cent, interest, and to that last
proposition the Treasury yielded. The War was not
to be fought with interest-free money, and/or/with
conscription of wealth ; though it was to be fought
with conscription of life. Many small businesses were
to be closed and their proprietors sent overseas as
redundant, and without any compensation for their
losses, while Finance, as we shall see, was to be
heavily and progressively remunerated.
As each war loan became exhausted the lenders
upon the first lower interest War Loans were
permitted to transfer into the later higher interest
Loans, and usurers' interest upon credit was added to
the national burden, so that to-day that burden is
insupportable and the nation staggers along, cutting
the bread and cheese of its poor, and starving the
social services in a vain attempt to meet the charges
incurred in the Great War Loan ramps.
The report of the Cunliffe Committee (1927) relates
the story of the progressive piling up of our War Debt
But it is in nowise a complete chronique scandaleuse
of usury in war-time ; nor did its authors so intend
1 Appendices to the Report of the Committee on National Debt
and Taxation (1927), p. 18 et seq.
USURY ON THE GREAT WAR 49
it to be. We find in its pages no reference to or hint
of the magical process by which, while the nation
struggled almost at death's door for its very exist-
ence, and while masses of the fittest of our manhood
were daily being blown into bundles of bloody rags,
our banking fraternities continued to create for them-
selves a great volume of new credit and to lend that
credit to us at interest, and indeed at progressively
increased interest ; no reference to the fact that by
this manufacture of bankers' credit some portion,
variously estimated in amount, of what now stands
as the public debt, was simply fabricated for private
ends and was not a bona-fide loan of real wealth to
the nation. Professor Soddy has estimated that the
bankers actually created 2,000,000,000, no less, of
this bank credit, and lent it out to us at 5 per cent. 1
That means 100,000,000 a year upon nothing.
The first War Loan at interest was floated in Nov-
ember 1914, at 3j per cent., and the investors were
only required to subscribe 95 for each 100 of
scrip. The total amount of the loan was 350 mil-
lions, but as there were not three hundred and fifty
millions of money in the country, what the State
received was credit the pledged credit of individuals
and corporations and banking houses (the same bank-
ing houses which, as we have seen, three months
earlier had been begging the Treasury notes on loan
from the Government to save their precious banking
system from bankruptcy) .
The second War Loan was issued at par in June
1915 at 4j per cent, interest ; and such investors,
and corporations and banking houses as had held the
previous War Loan Stock at 3! per cent, were permitted
1 Soddy, Wealth, Virtual Wealth, and Debt (Allen & Unwin Ltd.),
50 THE FINANCIERS AND THE NATION
to transfer into the new loan at the increased rate of
Actually of the 4^ per cent. Loan the sum of
176,000,000 was not new loan money at all, but was
a considerable portion of the old 3^ per cent. Loan
silently 'jumping the counter ' on to the higher rate.
And, in addition to that, the holders of no less than
138,000,000 of the new 4^ per cent. Loan were old
holders of 2^ per cent. Consols and 2^ per cent, and
sf per cent. Annuities, who also had been permitted
to transfer into the higher rate of interest yield. These
conversions at the higher rate of interest meant a
clear gift of at least 4,000,000 a year in extra in-
terest to the money-lenders.
But the story of this great finance ramp of June
1915 is incomplete without a reference being made to
the pledge extracted from the State by the finance
houses and banks that, should there be any subse-
quent issue of War Loan at a still higher rate of
interest than 4^ per cent., the holders of the new
4^ per cent. Loan (901,000,000 in amount) would
be entitled to convert at a higher scale, and this,
as we shall see in a moment, the great bulk of them
succeeded in doing.
Mr. Lloyd George has publicly declared that the
increased rate of interest offered in the War Loan of
June 1915 was quite unnecessary. He says :
* Looking back, I cannot help regretting that Mr. McKenna
should have thought it necessary to raise the interest rate of a
Government loan to 4^ per cent. Maybe this corresponded to
the price that was being offered for other gilt-edged securities.
But in view of the increase in our nominal capital reserves due
to war inflation and to the restriction of an overseas market
for investment money, which was also one of the effects of the
War, there can be little doubt that the Government could have
continued to obtain as much money as it required by
USURY ON THE GREAT WAR 51
voluntary investment, without raising its interest rate beyond
the level of 3$ per cent, at which my first loan had been
negotiated. Investors would have had to take this, for lack of
an alternative. And if they had been unwilling to do so, there
would have been a clear and popular ground for the conscrip-
tion of capital for war purposes a step which would have been
an appropriate corollary to the conscription of man-power
which we were soon to introduce.' l
We must note another, even more amazing and more
impudent, of the methods of debt and interest con-
coction in these delirious war-times. The banks
actually issued circulars to thousands of their cus-
tomers inviting them to apply for a portion of the
new War Loan and to borrow credit from the banks
for that purpose at 3 per cent. The customer was
to put up no money for his War Loan, no margin,
no securities. The bank was to supply the credit,
or rather was to back the customer's credit and was
to charge the customer 3 per cent, interest for so doing ;
but the State was pledging itself to pay 4^ per cent,
interest on the War Loan which the customer was
purchasing with his 3 per cent, money. The cus-
tomer, after allowing for his Income Tax, &c., was
clearly i per cent, per annum in pocket on the deal.
It is indeed difficult to write in cold blood of these
financial dodges, arranged between the City and the
Treasury and committed upon a nation in extremis.
In Marcl* 1916 the Bank of England, without any
apparent sense of shame, issued press advertisements
which ran :
* IF YOU CANNOT FIGHT '
' If you cannot fight, you can help your country by investing
all you can in 5 per cent. Exchequer Bonds. . . . Unlike the
soldier, the investor runs no risk.'
1 War Memoirs of David Lloyd George, vol. i. p. 122.
52 THE FINANCIERS AND THE NATION
Yet all these efforts surely paled before the shame-
less greed of the third great War Loan in January
1917. No foreign conqueror could have devised a
more complete robbery and enslavement of the
British Nation. The rate of interest in War Loan
was jumped to 5 per cent, (or at the option of the
investor, 4 per cent, free of Income Tax until October
1942) and the holders of previous War Loans and
Treasury Bills and War Expenditure Certificates were
invited to come in and convert their old stock into
the higher rates of booty, and for each 100 of Stock
in the new loan, only 95 had to be subscribed, so
that the rate of interest really had been raised to
5! per cent. Into this 5 per cent. War Loan tumbled
the holders on 820,000,000 of the \\ per cent. Loan,
thus securing an extra \ per cent, or 4,000,000 in
addition to the increases which many of them had
secured when the rate of interest was previously
jumped from 3^ per cent to 4^ per cent. And not
only were the 4^ per centers permitted to convert
into the 5 per cent. War Loan, but the holders of
130,000,000 of Treasury Bills and 280,500,000
of Exchequer Bonds also converted. The new
5 per cent. Loan of 2,075,750,000 secured only,
in fact, 844,750,000 of new loans, the balance
being paper conversions from old lower interest
Stocks, whereby the converters were enat^ed to dig
deeper into the national pocket than they had hitherto
But that was not the sum-total of the iniquitous
ramp which the lackeys of the money interest imposed
upon us with the 5 per cent. Loan of 1917. The
investors were made exempt from all British Income Tax
upon their interest payment if they chose to go and
live abroad. Mr. Lloyd George has himself testified
USURY ON THE GREAT WAR 53
that this 5 per cent. Loan was raised at ' a penal
figure/ and he continues :
' The same rate governed subsequent borrowings, which by
the end of the War had added a further 4,000,000,000 to our
National Debt. It cost the country a dozen years of remorse-
less deflation and concomitant depression to bring interest
rates down again to a level that would enable this vast sum to
be reconverted to 3^ per cent. Throughout the interval, not
only was the country taxing itself to pay a sum ranging at one
time as high as 100,000,000 a year more than it would other-
wise have done, but the high yield of a gilt-edged Government
security kept up rates all round, and made money dearer for all
enterprises, industrial, commercial, and national. It would
be hard to estimate the sum-total of the price paid by the
nation in every department of affairs for the decision of Mr.
McKenna in 1915 to increase the rate of interest paid by the
Government on its war-time borrowings. His action had, no
doubt, the fullest authorization from the leading circles of
banking and finance. But the country has since then had
ample evidence that these circles are by no means to be
reckoned as infallible advisers. 5 l
The 4 per cent. Tax-Free Loan of 1917 provided a
similarly convenient cloak for an increased tribute to
the money-lending interests. If that loan be examined
it will be found that out of a total loan of 52,000,000,
over 30,000,000 was conversion from previously
issued and less attractive interest-rated stocks.
But even in these hectic days there were stray warn-
ings in tfie capitalist-owned press that the money
maniacs were overdoing it. While the Financial News
gleefully and recklessly cried : ' Money is at last coming
in to its own ! 9 the more sober Glasgow Herald (May
1916) was declaring that :
' rates of interest have been raised and concessions made
until people have come to regard the giving of money for the
1 War Memoirs of David Lloyd George> vol. i. p. 123.
54 THE FINANCIERS AND THE NATION
prosecution of the War, not as a patriotic duty, but as a profit-
making medium ; this spirit is becoming so pronounced that
we have reached the stage when capital is deliberately withheld
in the hope that the Treasury will ultimately offer better
terms. As we have said, the Government has fostered this
spirit by its system of legalized bribery.'
And again :
* The investing public have been pandered to in a manner
altogether out of keeping with the times. If the process is
continued much further it may well be that victory can be
purchased at too high a price. ... It has been said, and not
without truth, that it is easier to find men willing to risk their
lives than to find capitalists willing to risk their money, unless
at a high price.' 1
The Daily Telegraph made no bones whatever about
it. War Loan Investment was, it advised its readers,
no sacrifice, but a ' golden opportunity ' and a ' certain
gain.' The distressed Glasgow Herald protested of the
1917 War Loan that ' It is not helping us at all to
prosecute the War.' And in June 1917 The Nation
' a huge proportion of the money loaned to the Government
is inflation representing no real savings on the part of the
bankers and financiers who have manufactured it themselves.
This means that when the War is over . . . the propertied
men in this country will be several thousand million pounds
And now we have the indisputable testimony of
Mr. Lloyd George, the war-time Prime Minister,
that from 1915 onwards the country has paid
annually huge unnecessary sums in War Loan
interest, rising to as high as 100,000,000 per
1 Glasgow Herald, 27/5/16 and 4/10/16.
USURY ON THE GREAT WAR 55
By January 1917 the position was that
176,000,000 of the loan issued in November
1914 at 3 1 per cent, had been, in the year
1915, gradually raised to 4^ per cent.
138,000,000 of 2^ per cent, and 2| per cent.
pre-War loans had been gratuitously raised
to 4! per cent, in the year 1915.
820,000,000 of 4^ per cent, money (including
presumably the two conversions above noted
totalling 404,000,000 already raised to the
rate of 4! per cent.) were gradually further
raised in 1917 to 5 per cent.
130,000,000 of Treasury Bill money and
280,500,000 of Exchequer Bond money had
also converted from lower rates into the higher
5 per cent, interest rate.
If we accept 3^ per cent, the outbreak-of-war rate
for money and that is Mr. Lloyd George's figure
as the normal and non-profiteer rate, then these
successive bribes down to 1917 meant, upon the
most conservative computation, a net increase of
30,000,000 per annum in the nation's toll to its
money-lenders. Nor does the fact that in the year
1932 part of this money was reconverted to a 3^ per
cent, rate, disguise, in the slightest degree, the shame-
less money ramps that were permitted for seventeen
years onwards from 1915.
Whoever else made economic sacrifices during the
War, the rentier class, as a class, did not.
The man who invested 10,000 in British Govern-
ment Stock before the War would have received
interest of 325 per annum. By October 1915 he
would have received 450 per annum. After allowing
for the increased Income Tax from is. $d. to gs. 6d. per
56 THE FINANCIERS AND THE NATION
1, he was in 1915 better off by 67 per annum. And
while the Income Tax rate rose in subsequent years,
so too and more, did the war loan interest rise to meet
it. For example, the man with 100,000 sunk in
Consols in 1913-14, earning 2| per cent, got 2500 of
an investment income. Upon this sum he had to pay
Income Tax and Super Tax amounting to 137, is. 8d.,
leaving him with 2362, i8s. 4d. In 1918-19 the
same man with his 100,000, by that time yielding
5 per cent., or 5000, would pay from his 5000 an
Income Tax and a Super Tax amounting altogether
to 1787, i os., leaving him with 3212, ios., or an
increase in his net income of 849, i is. 8d. after paying
his taxation. It is true, of course, that this man's death
duties had increased as also had his local rating and
his cost of living, but these charges had equally in-
creased for other classes whose income was not secured
upon the national taxes.
In post-War years there appears another form of
money-lending to the State to which attention must
be drawn the form known as Savings Certificates.
These Certificates have had various interest yields,
usually, however, running about 4 per cent, per annum,
and each investor is authorized to hold as many as
500 certificates and is exempted from all Income Tax
upon them. By this method a man, his wife, and say
five of a family may each hold 500 certificates, or a
sum-total of 3500 upon which all Income Tax is
evaded on the interest yield.
By June 1919 we came to what was gleefully de-
scribed as the Joy Loan. The rate of interest was
nominally 4 per cent., but the investor had only to
pay 80 for each 100 of stock, so that the yield was
5 per cent., and holders of the previous 4^ per cent.
War Loan, various Exchequer Bonds, and the first
USURY ON THE GREAT WAR 57
three series of National War Bonds were accepted at
par. The total issue of the loan was 409,000,000, but
120,000,000 of this sum was simple conversion from
a lower rate of interest and really meant an annual
increase of over half a million sterling for the taxpayer
to meet in interest. More important, perhaps, was the
proviso that fixed these rates until the year 1960, so
that although, as the Manchester Guardian sapiently
observed, the interest rate for money might fall after
the War, the nation would be tied up to the rate of
5 per cent., and this, indignantly declared the Guardian :
* will mean a gift of thousands of millions of pounds un-
earned increment to the investor out of the taxpayer's pocket
. . . from the point of view of the English people this is the most
burdensome and vicious loan in English History.' l
And the comment of the Nation (Radical) 2 was no
less indignant :
' To find large numbers of these men and their ill-gotten
money planted permanently on their country and sucking
each year an interest higher than that paid to current thrift
will act, we feel sure, as a dangerous social irritant in the body
The Joy Loan, moreover, was made more joyous
still by a clause decreeing that stock costing 80 was
to be accepted in payment of Death Duties as if that
Stock were the equivalent of 100 a clear gift of over
17 per cent, to the heirs of the patriotic lenders.
The Victory Bonds (100 Bonds for every 85 and
an interest rate of 4 per cent.) issued at the same time
raised 359,500,000, of which 71,500,000 was simple
conversion from lower interest-yielding War Loans.
The few isolated protests against these proceedings
went unheeded, and year after year the Financial
1 Manchester Guardian, 13/6/19. * Nation^ 21/6/19.
58 THE FINANCIERS AND THE NATION
Interests openly looted additional millions from the
National Treasury. When in the summer of 1921 a
load of National War Bonds was being converted into
an additional burden to the State, The Times was con-
strained to utter a solemn protest and warning, Under
the heading of ' Financial Folly ' its leading article
declared that :
' There is being enacted before our eyes at this moment
a most extraordinary performance in finance : and yet the
spectacle seems visible only to a few . . . the Government
. . . offering holders of 632,000,000 of 5 per cent. National
War Bonds an opportunity, quite unsought, of exchanging
each 100 into amounts of 3^ per cent. Stock, varying from
1 60 to i&3. 1 In other words, they are being asked to receive
from the taxpayer 4,000,000 more in interest and between
three and four hundred millions of additional capital when the
loan is redeemed.' 2
By this time saner elements in the City had come
to the conclusion that the limits of interest raising and
capital conversion into increased plunder of the national
debt had, at last, been reached. The public would
stand no more of it. Yet new vistas of profit opened
up to the rentier class when Wall Street and London City
agreed to begin a policy of price deflation. The idea
was that the bankers were to call in loans and over-
drafts : they were to compel manufacturers to throw
their goods hurriedly upon the markets so asjp raise
cash for the repayment of their bank loans. At the
same time the Government were to throw their surplus
War Stores in clothing, &c., upon the markets, thereby
intensifying the glut in the markets and making a fall
in prices inevitable. As the prices of consumable goods
fell, wages were to be broken.
1 This refers to the first Conversion Loan, 1921.
2 The Times, 13/5/21.
USURY ON THE GREAT WAR 59
But while prices were to crash the rates of War Loan
interest were fixed, and the bankers foresaw that every
fall in the price of potatoes and wheat and cheese and
boots and coal would mean that War Loan interest
would be able to purchase increasing quantities of
these commodities. If prices, let us say, fell by half,
the value of interest would be doubled. In other words,
a fall in prices by half would double the value of the War Loans.
As the nation would pay off the loans or meet the interest upon
the loans it would require to yield up double the quantity of
consumable wealth to the money-lending class.
Mr. Bonar Law early saw the alarming possibilities
of this new financial policy, and bravely warned the
House of Commons of what it would mean to the tax-
payer and the National Debt. c We had borrowed/
he said, ' 8000 millions ; we should probably require
to pay 16,000 millions. 1 Sir Henry Strakosch has
estimated that the fall in prices during the four years
1925-8 added silently no less than 1,300,000,000 to
the capital value of the National Debt, 2 and Mr. J. M.
Keynes has declared that a fall in prices to pre-War
level (and some prices are already below pre-War
level) would make the British National Debt 40 per
cent, greater than it was in 1924, and double what it
was in igso. 3
Nevertheless, this policy of deflation and price and
wage deduction, with its appalling social consequences
in poverty and unemployment, was relentlessly pur-
sued. And not until 1932 did any British Government
even pretend to set a limit to the toll of the money-
1 Hansard, 2/5/22.
2 Supplement to the Economist, 5/7/30.
3 The Nation, 20/12/30. The policy of deflation has of course
a similar effect upon municipal debt, feu duties, and all forms of
fixed money contracts.
6o THE FINANCIERS AND THE NATION
lenders. In that year the Treasury, reversing the policy
it had consistently buttressed since 1915, appeared with
a loan conversion scheme which reduced the rate of
interest upon 2,000,000,000 of Government Stock.
The scheme, however, was voluntary ; five per-
centers were invited to exchange into a new 3^ per
cent, loan to correspond with the rate for money
prevailing in 1932 ; but the appeal had to be sweetened
with a bribe of cash down to be paid immediately
to those who would accept the new terms ; and even
so, the 5 per cent, rate of interest had to be paid until
The bribe, in fact, cost 20,000,000. or nearly a
year of the saving to be derived from the Conversion
Scheme. And the bankers insisted upon receiving
a fee of 55. per 100 for rubber stamping any appli-
cation for Conversion Loan which went to the State
through their hands.
Doubtless there were many millions of money lent
patriotically to the State, money whose owners were
disturbed and ashamed at the profiteering in finance
which made riot during and after the War. The
Rt. Hon. Stanley Baldwin, for example, who was
Financial Secretary to the Treasury, and saw at first
hand the roguery and ravenous greed of Finance while
the Nation was in extremis, anonymously handed over
150,000, representing 20 per cent, of his Jprtune, l
to the State to clear his conscience, and to set an
But the controllers of the Money Power, the men who
cold-bloodedly raised their demands upon their fellow-
countrymen with every German advance in the field
and with every German U-boat campaign at sea ;
the men who organized the creation of hundreds of
1 Encyclopaedia Britannica, ii. 986.
USURY ON THE GREAT WAR 6l
millions of unnecessary debt, the men who inflated
rates of interest ; the men who, as the price of providing
credits to free us from the threat of German slavery,
enmeshed us in an interest burden of a million pounds
per diem it is they whose war-time plunderings I have
sought to record in the foregoing pages. The machina-
tions of the organized Money Power during the stress
of war surely provide the most convincing of evidence
that the nation must be the sole creator of money, and
the guardian and banker of the savings and thrift
of its citizens, if well-being and security are ever to be
the common lot of men.
POST-WAR * PROSPERITY '
' And I shall be delighted to learn who,
Save you and yours, have gained by Waterloo.'
LORD BYRON, * To the Duke of Wellington.'
' We have restricted credit, we have restricted opportunity,
we have controlled development, and we have come to be one of
the worst ruled, one of the most completely controlled and
dominated Governments in the civilized world no longer a
Government by free opinion, no longer a Government by con-
viction or the vote of the majority, but a Government by the
opinion and the duress of small groups of dominant men.'
President WOODROW WILSON (U.S.A.), The New Freedom.
WHEN the War began, the belligerent nations carried
national debts amounting to 5, 7 75,000,000.
When the War ended these same belligerent nations
carried national debts amounting to 40,000,000,000.
In so far as the British National Debt was concerned,
the gentlemen of the City had a cheerful and half-
witted formula with which they airily disposed of it ;
Germany would pay ! In 1919 a Reparations Commission
under the Chairmanship of Mr. Hughes, the Prime
Minister of Australia, advised Mr. Lloyd George that
Germany could and should pay 24,000,000,000.
Two years later this figure was cut by half. In 1922
the London Agreement reduced it to 6,600,000,000.
In 1924 the bankers and financial pundits, led by
General Dawes, reduced the figure still further. Then
in 1929 the so-called Young Plan reduced it to
1,700,000,000, or one-fourteenth of the original
POST-WAR 'PROSPERITY' 63
lunacy, and despite the fact that the victorious powers
or some of them have lent the Germans all the
wherewithal to pay what reparations they actually
have paid, even the limited Young Plan payments
are now suspended sine die. There is a stand-still agree-
ment in operation, and in operation permanently.
The farce is over. Not the craziest backbencher in
Parliament to-day could be induced to raise a cry for
a penny of reparations ; and the slogan of ' Make
Germany pay,' which, with its ally, ' Hang the Kaiser,'
won the General Election of 1918 for the hard-faced
men who had done well out of the War, is now dead,
But in 1919-20 the geniuses who control our
monetary affairs drifted, gaily and light-heartedly,
into a great Stock Exchange boom, the wildest and
most reckless in our history. The Germans, they
thought, were going to wipe out our debts for us.
Prosperity had come round the corner.
It was true that the German Mark had fallen in
1919 from is. to id., and that the Italian lira was only
at half its pre-War value ; but Germany and Italy
were far away, and, anyhow, we had won the War,
and the Labour Party had been smashed at the polls,
and happy golden days had come how, they knew
not, and cared less for the gamblers upon the stock
and share market. Speculative shares rose from 100
points ift 1918 to 145 points in 1919. Fortunes were
for the lifting in Change Alley. Yet these stock market
speculators were mere puppets on the end of a string
manipulated by the secret banking camarilla which
rules the world.
The investment boom of 1919-20 was due and
demonstrably due to banking policy.
Let us compare the new capital issues in Great
64 THE FINANCIERS AND THE NATION
Britain for the years 1920 and 1913, and observe the
extraordinary increase in the flotations for the home
NEW CAPITAL ISSUES.
1920. I 9 I 3>
For the United Kingdom . . 328,000,000 36,000,000
,, British Possessions . . 3 /, 500,000 76,000,000
,, Foreign Countries . . 7,750,000 ^4^0,000
Why should there have been so marked an increase
in the demand for new capital in British enterprises
as between the years 1913 (36,000,000) and 1920
The answer is that in 1919-20 the banks had begun
to squeeze the industrialists for repayment of over-
drafts and loans ; and the industrialists, the borrowers,
in order to repay the banks, invited Mr. Simple-Man-
in-the-Street to subscribe to new flotations.
In other words, the great Stock Exchange boom of
1919-20 was not an indication of prosperity at all,
but was in large measure a transferring of the financial
obligations and loans, hitherto carried by the banks,
to the Trust Funds and the widows' mites of the
subscribing and investing public.
The staid and impartial record of historical fact
in the Annual Register for 1920 has it that
* Bankers pressed traders and manufacturers for the repay-
ment of overdrafts, and they obtained the money to do so from
Precisely ! Their policy could not be more succinctly
More in detail, the Sunday Chronicle in January 1921
recounted how, six months before,
* The big New York bankers had a talk, and they decided that
wages must come down. They discussed the matter with the
POST-WAR * PROSPERITY 5 65
banking mandarins on this side. Then began a campaign
of calling in all credits, of refusing loans to commercial enter-
prises. The petrol was cut off.'
And hence, the new companies looking for money
from the general public ; and the new crop of baby-
holders advertised for and secured ; the why and
wherefore of the Stock Exchange boom of 1920.
Bankers generally unloaded their industrial risks upon
the general public ; but immediately the new com-
panies were floated to pay out the bankers' over-
drafts the bogus prosperity' was abandoned.
In the autumn of 1920 prices were already tumbling
down ; companies unable to secure fresh capital sold
off their stocks at sacrificial figures indeed, at any
figures, in order to secure money to repay the banks ;
other concerns unable either to float new issues or
sell stocks, simply crashed without more ado.
Between April 1920 and December 1920, The Times
index number for the price of materials fell from 339
to 207 ; the new investing class discovered that their
share script was progressively diminishing in value
day by day ; industry slowed down ; unemployment
by the million became a fixed feature of our civiliza-
tion ; the nation found itself reaping the first-fruits
of the bankers' policy of deflation.
Never was there a monetary policy that brought so
great misery to our world. The bankers called in
their loans : they compelled manufacturers to sacri-
fice their stocks hurriedly : they glutted the markets
and they broke prices : they broke wages : they
paralysed industry and brought hunger and want to
hundreds of thousands of homes.
The Times indices of commodity price movements
show that whereas in April 1920 prices stood at
352-9, they had fallen by the end of December 1921
66 THE FINANCIERS AND THE NATION
to 1 62- 1. A price collapse of over half in twenty
months' time !
In the year 1920 railway shares fell 17-3 per cent, ;
Iron and Steel shares fell 33-7 per cent. ; Shipping
shares fell 21-7 per cent. Of the next year, 1921, the
Annual Register declared :
' Not for a hundred years has British finance and commerce
experienced such a disappointing year. ... It was a period
of unrelieved gloom.'
The recorded failures of business firms showed :
1920, 2286 ;
1921, 5640 ;
The Annual Register for 1921 is careful to explain
that, in addition to the scheduled list of business fail-
ures, there were ' enormous amounts ' of credit, which
had been given by the banks and financial houses
to business firms, and which had become simply irre-
coverable. But they could not make omelettes without
breaking eggs, and in the great campaign to raise the
value of money, and lower the value of goods, risks
here and there had to be taken. At any rate, the
gains would vastly exceed the losses.
It was not * policy ' (sic /) meanwhile to allow too
many borrowing firms to crash ; when better times
came and prices rose a little, the banks wauld then
permit these shaky firms to fall naturally into the
And, concluded the Annual Register, naively
* many cases of insolvency will not be allowed to come to
light until the losses involved have been somewhat reduced.'
First, then, there was the boom, and the recapi-
talization and the watered stock, and the bonus shares ;
POST-WAR 'PROSPERITY' 67
the small investors tumbling over one another to buy
shares at high prices. And secondly, when the re-
quisite proportion of the new capitalizations and
watered stocks had been safely unloaded upon the
simpler citizens, hey, presto ! deflation began, prices
and wages down with a rush, dividends reduced, and
the small investor compelled to peddle his shares in
a rapidly falling market !
HOW FARROW'S BANK FELL
* That which the palmer- worm hath left hath the locust eaten ;
and that which the locust hath left hath the canker-worm eaten ;
and that which the canker-worm hath left hath the caterpillar
eaten.' JOEL i. 4.
AMONG the earlier victims of the deflation storm
was the concern known as Farrow's Bank, the
collapse of which brought ruin to thousands of poor
but credulous depositors (who had been looking for
7 per cent, interest with security), and the trial and
imprisonment of the two leading controllers of the bank.
Mr. Farrow had started the bank in 1904 with a
capital of 27,000 ; it had survived for 16 years, and
during the period it had paid interest rates of from 6
to 7 per cent, to depositors, and at the date of its
collapse it had collected some 4,000,000 of the
savings of small investors who were eager for the
promised heavy interest upon their deposits.
To this class of dupe, directors of the bank laid skilful
siege. They issued a magazine called Farrow's Bank
Gazette, which, in the light of subsequent disclosures in
Court, was surely the last word in impudent duplicity.
Every other month there was an article by a
Conservative M.P. attacking State and Communal
activities, and in the leading articles we find such
booby-trap stuff as :
' We have had a record year. . . . The once despised Ishmael
of the banking world, we are now the admired instrument o*
HOW FARROW'S BANK FELL 69
economic service. We now rise to the highest heights, and
never more need have any fear of our position, as our future
place in the world is for ever assured.'
One of the chief men in the concern, indeed, had
the hardihood to tell the shareholders at the annual
meeting three months before the doors of the concern
were shut that c We have had to work patiently and
gradually, but at last we have doubled our figures.'
And how literally true and factful was that last
sentence, we shall see presently.
The directing financiers specialized in the religious
Press with their advertisements for new depositors ;
but although they regarded the religious as ' easy
meat, 5 they were by no means prejudiced, or bigoted.
Any man or any woman's money was good enough for
them, and they would take in an Atheist as readily as
an Anabaptist. They had seventy-two branches for
doing what they called * business ' ; they had a
Scottish advisory board, and they had actually
succeeded in inducing a respected ex-Lord Provost
of Glasgow, Sir Samuel Chisholm, to become the
chairman of that advisory board, and used his name
as a lure !
And then suddenly came the crash. On December
20, 1920, the bank shut its doors, and the next day
Mr. Roome, for the Director of Public Prosecutions,
was in Court declaring that the bank was ' hopelessly
' A shocking fraud has been perpetrated on the
public,' he said. ' For the past nine years, from 1911 and
onwards, there has been a heavy annual loss on trad-
ing amounting in the aggregate to upwards of i ,000,000,
yet the public accounts of the bank have been manip-
ulated so as to show a profit and induce the public
to believe that the bank was prosperous and sound.'
70 THE FINANCIERS AND THE NATION
Later, in June 1921, when the trial of the chairman,
the secretary, and the accountant took place, the
Attorney-General described the bank as c a miserable
concern/ and declared that ' the whole business was
a colossal and protracted fraud, stage-managed with
stage hands and a property room. 5
There was a deficiency of 2,000,000 ; the chair-
man was indebted to the bank funds for large sums
of money ; and another beneficiary in the witness-
box admitted dealing or speculating in Mexican rails,
' but he did not know whether it was for the bank or
his own account. 5
The accountant and auditor admitted that a pro-
perty owned by the bank, called the Dreadnought
Cement Company, and which the bank had pur-
chased for 5500, had been entered in the bank's
balance sheet as an asset worth 780,000. And there
was a Clay Company in Cornwall for which the bank
had paid 230, entered on the bank's balance sheet as
an asset worth 150,000.
The total ' write-up 5 of the assets, according to Sir
Gordon Hewart, the then Attorney-General, amounted
to no less a sum than 2,167,790 ; and in addition,
for the year 1920 alone, there was a trading loss of
1,114,145. So that actually at the end of the year
there was a deficiency of 3,281,935.
There was nothing for the shareholders t9 divide,
and the depositors in the bank would be lucky if they
got 35. in the i returned to them !
Mr. Farrow, in Court, said that he had often felt
that handling four millions of the savings of the people
was too great a responsibility for one man. And he
added : ' I am not in a Court of Morals. I know many
things are done by the banks at the end of the financial
HOW FARROW S BANK FELL 71
What these many things were he did not further
disclose, or, if he disclosed, a discreet Press took care
not to pass them on to the public.
Nevertheless, the presiding Judge at the Court of
Non-Morals issued sentences of imprisonment ranging
from one year to four.
But how were the Farrow's Bank frauds discovered ?
What was the major miscalculation or oversight by
the ingenious financiers which resulted in these artful
dodgers of high finance being laid by the heels ?
In the answers to these questions there is a certain
grim comedy, which is all the shareholders got at the
winding-up of the concern.
In 1920 the proprietors of the business had con-
sidered the time opportune for the bank to be passed
on as a prosperous going concern to any individual
or group of individuals possessed of more money than
wisdom. And, providentially as it appeared, there
arrived in London a Mr. Read, a financier of New
He was of Norton, Read & Co., and had come over
to London for London's good, among the methods of
carrying out which laudable object was apparently
the sale to British investors of 850,000 shares in the
Callax Oil Company of Mexico. Mr. Read was
evidently in the finance business in a big way, and
Farrow's conceived it to be their bounden duty to
unload their bank upon this innocent stranger from
a far country who was peddling the Mexican oil
So a deal was arranged. Read was to buy Farrow's
Bank and become the owner of that prosperous and
thriving institution. He was to put down 150,000
for the purchase of shares, and to bring in 500,000 of
72 THE FINANCIERS AND THE NATION
Of course, there was to be compensation awarded
to the Farrow's Bank pioneers out of the new American
money. The secretary at first asked for 200,000 in
compensation on behalf of the disappearing directors,
but ultimately agreed, in order not to appear too
grasping and greedy, to accept 100,000. Farrow was
to get 28,000 cash down as compensation, and
4000 a year for consenting to remain as chairman.
Read was to be managing director for the future.
Then the next Farrow's Bank balance sheet appeared,
and Read was staggered to find that his promised
500,000 was already being shown as an asset.
Quick, slick work that, thought the oil share sales-
man ; these skilled practitioners in London were too
agile for him ; he might be safer in little old New York
after all. So he cleared out of Farrow's at once on the
ground of misrepresentation ; and the Farrow fat,
balance sheet, and all, was in the fire.
Nor does the American gentleman appear to have
been so badly stung in the transaction, for Mr. Curtis
Bennett (later Sir Henry Curtis Bennett) declared in
Court that Read had not paid in cash to Farrows, but
only 2500 oil shares in lieu of cash.
In the course of the trial it emerged that the Farrows
Bank operators had the idea that if the worst came to
the worst the Government would intervene to save
the bank, as Governments had saved othef banks
before, and they threatened that they ' would go out
on a roaring campaign for State inspection of all bank
Perhaps it is a pity they did not, for had their roaring
campaign been a success we might have been spared
the spectacle of the Committee on Finance and In-
dustry (1931), popularly known as the MacMillan
Committee, reporting that many of our respectable
HOW FARROW'S BANK FELL 73
banks were engaged in a practice of ' window dressing 9
their balance sheets. In that report we read (pages
156-157) how British banks arrange their balance
sheets for separate days. How Bank A borrows (' tem-
porarily acquires ' is the phrase used by the MacMillan
Committee) from the money market on the morning
of its balance sheet and returns the sums it had bor-
rowed early next morning, so that Bank B will be able
to get these sums in time for its balance sheet. And
how Bank C does the same thing next day, and so on
down the list.
By these dexterous sleight-of-hand methods the banks
are able to show great cash reserves, which in fact and
reality they do not possess ; and the MacMillan Com-
mittee goes the length of estimating the ' temporary
display ' figures so paraded in the balance-sheets as
amounting to no less than 75,000,000.
And these are the c respectable ' institutions, which,
of course, Farrow's Bank was not.
PLUNDERING THE MUNICIPALITIES
* There's a sucker born every minute/ PHINEAS T. BARNUM.
IN January 1930 Mr. Justice Avory told Clarence
Hatry and his associates that they stood convicted
* of the most appalling frauds that have ever disfigured
the commercial reputation of the country, frauds far
more serious than any of the great frauds on the public
which have been committed within the past fifty
' I am unable to imagine/ he added, ' a worse crime
And The Times in its leading article upon the Hatry
robberies, cried indignantly :
' There have been rogues in finance before, but downright
fraud and treason like this in the very citadel have not been
known. . . a signalman has deliberately tampered with
the signals : a rogue has traded upon the common expectation
of integrity in finance. 5 l
Of one of the Hatry concerns, the Austin Friars
Trust, which began in May 1927, and was wound up
in September 1929, the Attorney-General declared in
* It must have had a gay life while it lasted, as its liabilities
were estimated to rank at 19,000,000, and the assets at only
But the part of the Hatry indictment which has the
most important, and, indeed, I believe, a unique
1 Times report, 25/1/30.
PLUNDERING THE MUNICIPALITIES 75
lesson for us, is that which dealt with Hatry's incur-
sions into Municipal Finance.
We read of great Municipal Corporations raising
their loans through Hatry and his group of specula-
tors. What a list ! Among them Plymouth, Rother-
ham, Chesterfield, Grimsby, Wakefield, St. Helens,
Bath, Poole, Doncaster, Bristol, West Hartlepool,
Bradford, Swansea, Wolverhampton, Sunderland,
Baling, Newcastle, Nottingham, Blackpool, Sheffield,
Eastbourne, Wigan, Southampton, Hastings, Tyne-
mouth, Brighton, Stoke-on-Trent, Walsall, Doncaster,
Birmingham, and Gloucester.
Not all of these towns were bitten. Most of them
escaped. But some were bled almost white ; Wake-
firlcl, for example. That city, so The Times (September
28, 1929) estimated, would require to get a thirty-year
loan to meet the Hatry losses, and the annual cost
during these thirty years would be no less than is. 4d.
on the of rates.
Wakefield had raised a loan through one of the
Hatry Finance companies, for 422,000 to be paid
in instalments. The city of Wakefield was liable for
this 422,000 of issued stock, but had, in fact, received
only 100,000 in cash. Worse still, it transpired that
Hatry and his friends had issued bogus Wakefield
certificates of stock for no less than 350,000. A total
robbery^on Wakefield alone of 672,000 !
In the case of Swindon, the City Council received
only 250,000 out of an issue of stock for 500,000,
and, in addition, there were 220,000 worth of bogus
certificates sold, or lying at banks as security for other
' loans ' given to Hatry and his group. At Swindon,
the total plunder was therefore 470,000.
Gloucester Corporation had likewise received only
250,000 cash for a loan liability of 500,000, and,
76 THE FINANCIERS AND THE NATION
in addition, the Hatry group had fabricated extra
certificates for 217,000. Here the plunder was
Almost incredible, is it not, that municipal corpora-
tions should raise their public loans through money
agents and reckless adventurers like Hatry ! And
equally incredible, surely, that we should still, to this
day, be without a National Investment Board, or a
Federation of Municipal Banks, which could guide
and assist Municipal borrowing.
But there is this to be said to the credit of Hatry,
that when his balloons had exploded and he stood in
the dock charged with wholesale forgery, he did not
whine or pretend that he had sinned inadvertently ;
he declared in court with engaging candour :
' I am now irretrievably and irreparably ruined. My name
has become a by-word, and if I am found guilty, when I leave
prison whenever that may be my punishment will begin
all over again. . . . Sir, I do not pretend to be a fool. I fully
realized all this when I took the risks, and equally I had every
reason to be convinced at the time that I was saving the situa-
tion and thereby protecting my creditors. . . .
* Crazy as appear to have been my actions in the light of
subsequent developments, I was actuated solely by a desire
to do the right thing. My motives were clean and creditable.
Sir, I will take whatever punishment is in store for me without
* It is not my intention to apply for bail, and I hope that in
the event of my colleagues making such an application you
will give it favourable consideration.'
At the age of twenty-three he was an insurance
clerk ; at thirty, a director of fifteen companies.
He had begun his career as company promoter by
' organizing ' Jute Industries Ltd. (capital, 8 millions,
which has been since surgically cut, to the great loss
of the shareholders) ; then the Commercial Bank of
PLUNDERING THE MUNICIPALITIES 77
London (afterwards known as the Commercial Cor-
poration of London) which went bankrupt in 1923
with heavy losses. Next he c organized ' British Glass
Industries Ltd., and floated it off (with a swollen
capital for goodwill) to the inevitable rocks.
Yet, despite his record, he always seemed able to
command any amount of Bank credit for fresh ven-
tures, and, one after another, he floated such concerns
as the Drapery Trust, the Austin Friars Trust, Auto-
matic Machines, the Corporation and General Securi-
ties Ltd., the Oak Investment Corporation, and the
Retail Trade Securities Ltd. all of them will be
found blacklisted on the London Stock Exchange list
In that same year, 1929, he had promoted Allied
Ironfounders Ltd., and had undertaken to purchase
the securities of certain steel companies for 8,000,000,
and to form a huge steel manufacturers' Combine or
It was in this last speculation that he broke. He
borrowed money to purchase the steel securities.
Part of that borrowed money he did, in fact, devote
to the purchase of these securities, but the rest of it,
and more besides, he spent in trying vainly to keep
up the price of other Hatry shares upon a rapidly
Many who read these lines may recollect the rapid
fall in the price of stocks and shares in the autumn
of 1929. Hatry was caught in that crash.
Between September 19 and November 13, 1929
less than two months the values of securities dealt
with upon the New York Exchange fell by the almost
incomprehensible figure of 8,000,000,000, a sum
greater than the total British National Debt, and greater
than the entire cost of the War to the United States.
78 THE FINANCIERS AND THE NATION
Hundreds of thousands of families were ruined in a
single night. On one day no fewer than 17 million
shares changed hands on the New York Exchange,
and in an endeavour to dam back the torrent the
Exchange was opened only for three hours a day
and not at all upon Saturdays.
When the typhoon hit London and according to
the Bankers* Magazine 365 British Securities fell in
value by 349,775,000 Hatry strove in vain to main-
tain the value of the steel securities upon which he
had raised loans right and left.
He resorted, as we have seen, to the forgery of
municipal bonds as a method of raising money. But
the price crash was too serious and too prolonged for
Hatry to cope with, and when he realized that his
liabilities exceeded his assets by some 20,000,000,
he and his group (except one Gialdini, who had bolted
to Italy) went to the Public Prosecutor and confessed
to c irregularities. 5
The Hatry crash stunned the City, and not even a
stiff sentence of fourteen years' penal servitude for
Hatry, and periods of seven years and three years
for his companions, abated for a long time the wrath
and indignation of the money market towards the
joint-stock banking system, which had, in using him
and financing him, cast a mantle of c respectability '
over his operations.
LESSONS FROM LEE BEVAN
* Statesmen and patriots plied alike the stocks ;
Peeress and butler shared alike the box ;
And judges jobbed, and bishops bit the town,
And mighty Dukes packed cards for half a crown.'
POPE, * Epistle to Lord Bathurst.'
AMONG the larger fish caught in the bankers'
deflationary net in 1922 was Mr. G. L. Bevan.
He was Chairman of the City Equitable Insurance
Company and senior partner in an old-established
firm of stockbrokers ; lived in a suite at the Carlton
Hotel ; during his spare time he was a director in such
solid enterprises as Leyland Motors, South American
Stores, South Brazil Electricity, and Agricultural
He was a great city magnate, one of the class which
dictates policy to Governments.
His City Equitable had assets of 3^ millions ;
its i shares with only 45. paid up upon them were
freely quoted on the Stock Exchange as worth 3 each ;
dividends of los. were paid upon the fully-subscribed
i ordinary shares, and the shareholders at the annual
meeting in June 1921, rose and cheered him to the echo.
He was indeed, as Mr. P. G. Wodehouse might say,
One of the Ones.
And although he knew that his balance-sheet assets
were largely fictitious, that the company was insolvent,
and that he himself was enmeshed in a network of
financial fakery, he rounded off an address to the
8o THE FINANCIERS AND THE NATION
cheering shareholders with a homily about * insurance
being, with banking, one of the twin bastions of modern
finance/ and inasmuch as they were privileged to
belong to one of these groups c it was their duty as it
would be their fixed and constant endeavour to bear
their part, relatively small though it might be, in a
manner not unworthy of the traditions of this great
A year earlier he had unloaded 250,000 eight per
cent, preference shares upon the market : they were
promptly oversubscribed. In addition, 464,000 shares
had been allotted to the existing holders of shares in
the Greater Britain Insurance Corporation and the
City of London Insurance Co. Ltd.
But by February 1922, Bevan had bolted from the
country under the name of Leon Vernier and wearing
a false black beard ; the City Equitable was in the
hands of the Official Receiver, and shareholders were
offering possible buyers six shillings per share to take
shares off their hands and to assume liability for possible
calls on the capital ; the Greater Britain and the City
of London companies were bankrupt ; the Equitable
Associated Co. had a deficiency of 2 J millions, and
Ellis & Co., the stockbrokers, where Bevan had been
senior partner, had liabilities said to be in the region of
That was in February 1922, and although the police
in every European capital were on the hunt for him,
he was not caught until four months afterwards in
Vienna. He was then brought back to London, and,
after a twelve days' trial, was sentenced to seven years'
penal servitude for, inter alia, issuing false balance-
sheets, a false prospectus, and fraudulently converting
the funds of the insurance companies he had directed
to his own use.
LESSONS FROM LEE BEVAN 8l
The detailed modus operandi of his frauds is very
difficult to discover ; and, indeed, The Times, com-
menting upon the Bevan trial, frankly confessed that
it was unable to explain precisely how the funds of the
City Equitable, the Greater Britain, and the City of
London Insurance Companies had disappeared. The
Editor of The Times was baffled.
* Great numbers of people, many of small means, placed
their faith in him (Bevan) and his concerns. They have been
ruined by his conduct. He juggled with the accounts ; borrow-
ing here to repay there, and weaving a skein of financial per-
plexities which eventually it became impossible to unravel.'
* Tortuous stratagems ' was how Sir Ernest Pollock,
who prosecuted, described Sevan's ingenious trickery ;
but the jury who tried the case declared that the trickery
was only ' rendered possible owing to other directors
not carrying out their duties,' in other words, had the
ornamental figureheads who were on Bevan's Boards
of Directors done their duty, instead of merely drawing
their directors' emoluments, the Bevan frauds would
not have been so easily initiated, nor have continued
for so long.
From the reports of the trial we learn that the
Britain Company (Bevan, chief director) had realized
404,000 of its assets and that Bevan had * reinvested '
150,000 of this money with a stockbroking firm,
Ellis & Company (where he was senior partner), and
221,006 of it with the City Equitable Fire Assurance
Company (where he was chairman of directors).
And at this period both Ellis & Company and the
City Equitable were financially upon the rocks.
In other words, he stripped the Britain Company by
investing its assets with himself under various aliases.
Similarly he ' invested ' 69,000 of the funds of the
City of London Company with Ellis & Company.
82 THE FINANCIERS AND THE NATION
And there was an Associated Fire Insurance Company
(again Bevan) with a deficiency of some 2,500,000 ;
Ellis & Company had losses declared to be in the
region of seven figures ; and the funds of all four con-
cerns seem to have been juggled about with the same
dexterity and rapidity of touch as Cinquevalli used
when he juggled with the ivory balls.
As an illustration : there was a manager of the City
Equitable Company who had a loan from the com-
pany of 110,000. He had also a salary of 5000 per
annum, free of income tax, and a commission of 4 per
cent, on the annual underwriting profits of the company.
These remunerations seem already absurdly gener-
ous, but when we read the terms upon which he bor-
rowed his i 10,000 loan, the thing becomes fantastic.
It is almost inconceivable, but true, that there was
a clause in his loan agreement declaring that ' if at the
end of eleven years, the commission to be credited to
him did not amount to 110,000 ' (and that, you will
observe, is an average of 10,000 per annum), ' he was
to be quit and free of the debt.'
Moreover, if the company failed, the debt was to be
automatically wiped out. In other words, this one
manager was apparently in receipt of 15,000 a year
for managing a more or less derelict company which had
parted with 904,000 to Ellis & Co. (that is, Bevan).
And it emerged in Court that the manager in question
had remitted a share of his 110,000 loan to Bevan.
Bevan had sat for years a City spider, and had woven
his schemes in an expensively furnished room with
expensive wood-carvings on the walls, the decorations
above the fireplace containing the design of an eagle
feeding her young, surmounted by the monogram
Consider it well, an eagle feeding her young !
THE METHODS OF MR. BOTTOMLEY
* Well, if I be served such another trick, 1*11 have my brains
ta'en out and butter 'd.' FALSTAFF in The Merry Wives of Windsor.
' . . . so-called captains of finance who skinned the country
alive by misnamed securities.' GENERAL JOHNSON, National
Recovery Administrator, U.S.A., The Times, 9/11/33.
ONE of the most daring operators in High Finance
since the present century began was Mr. Horatio
Bottomley. His was an amazing career and one only
possible in a civilization such as ours, where something
for nothing is the prevailing morality, and where the
clever humbug with a persuasive tongue can induce
the Foolish and the Gullible to invest their savings with
him in promising enterprises like the Sol Syndicate
or the Great Lucknow Consols Incorporated, or in the
purely imaginary extraction of gold from pots at the
foot of the rainbow.
Mr. Bottomley (for his war services dubbed not
inappropriately Hotairo) was born in 1860 ; was
trained as a lawyer in Birmingham ; revised proofs
for his uncle, George Jacob Holyoake ; at the age of
twenty-four was an active journalist in London,
running various periodicals, including, if you please,
a mothers' magazine.
Ere he was thirty years of age he had founded The
Hansard Publishing Union, and when it failed, and
had lost its capital of 1,000,000, the Crown authori-
ties, evidently in error, prosecuted Bottomley ; at any
84 THE FINANCIERS AND THE NATION
rate, he defended himself with great brilliance in court
and was acquitted.
Then he founded the Joint Stock Institute. By the
middle 'nineties he had become a considerable
magnate in the West Australian gold-mining market
and was a very wealthy man ; was adopted as Liberal
candidate for South Hackney, a constituency which
he won in 1906 ; was a very heavy investor in
theatrical speculations ; kept a racing stable in
Sussex ; successively won the Cesarewitch, the
Stewards' Cup, the London Cup, and the Prix de
By the end of the year 1906 his financial record can
be computed as follows :
Between the years 1885 and 1895 ^ e had promoted
or been concerned in the promotion of fourteen limited
companies with a total nominal capital of 2,981,507.
Of these fourteen companies nine had by the end of the
year 1906 completely disappeared in liquidation either
* compulsory ' or * voluntary * : in one company the
allotments were cancelled : one was reconstructed :
one dissolved : one ' ceased ' : and one was reported
as showing ' no dividends and no reports.' Many
of these ' dud ' concerns were in Australian gold-
mining. By 1906, therefore, all the fourteen com-
panies referred to had vanished, either in liquida-
tion, dissolution, cancellation, cessation, or * lack of
During the next ten years, 1896 to 1906, Mr.
Bottomley was concerned with the flotation of forty-
three limited companies. From the names he gave his
companies, there appear to have been thirteen of
them, which were nominally at least, concerned with
gold mines. But he had catholic tastes, for he floated
rubber and copper companies, and land companies
THE METHODS OF MR. BOTTOMLEY 85
and Petroleum Exploration companies, mostly in
Australia and New Zealand, and a John Bull Company,
which he registered in Guernsey. The nominal capital
of these forty-three ventures reached the figure of
21,751,000. But how much of that money was
actually subscribed by the investing public we do not
know. What we do know is that by the year 1906,
no fewer than thirty of the companies had disappeared
in 4 liquidation ' or * reconstruction/ and no informa-
tion was obtainable about seven (although in one case,
the Eureka Gold Mines Incorporated, the i shares
had been dealt with at 3d. each) ; in several of the
concerns no subscriptions had apparently been re-
ceived ; and only two companies had survived infancy
without ' reconstruction.'
In 1908 once again he was prosecuted by the Crown,
but again he emerged victorious from the law courts.
About this period, however, he was much harassed by
civil actions raised against him by his victims or their
relatives, and The Times, in a survey of his career many
years afterwards , x says of him about the years 1908-10
' The Judges criticized his doings severely, and once the
executors of a speculative old gentleman of eighty were
awarded 50,000 damages, after which he had to make an
apologia in the House of Commons.*
The 50,000 action commonly referred to at
the time as the Masters case the case to which
The Times refers, was raised against Mr. E. T.
Hooley and Mr. Bottomley, by the daughter of
an old gentleman called Masters who had died in
1910. Mr. Hooley compromised, but Mr. Bottomley
86 THE FINANCIERS AND THE NATION
fought and lost, The Times report declaring
* The ground of action was that the defendant persuaded the
deceased to buy large numbers of shares in various Bottomley
companies by making false and fraudulent representations as
to their value, the shares, in fact, being quite worthless in
The verdict of the jury was unanimously for the
Mr. Bottomley appealed, but lost, Lord Justice
Moulton, one of the Lords of the Appeal Court, in his
judgement asserting that every penny paid into the
Investment Trust admittedly had ' gone to Mr.
In 1911 the failure of Mr. Bottomley's finance com-
panies and the costs of his lawsuits landed him in the
Bankruptcy Court ; in 1912 he had to resign his seat
Between 1906 and 1921 he did not do so much in
Dominion gold company flotation, going in instead
for fresh ventures in Pulp and Timber flotation in New-
foundland, London and South-Western Canal (re-
gistered in Guernsey), Printing and Publishing in
London, Premier Briquette Co. Ltd., Investment
Trusts, and so on fresh pastures likely to attract fresh
crops of * suckers.' Nineteen companies in all he
floated during this period with a nominal capital a
little over 3,000,000. Of the nineteen coihpanies,
however, no fewer than thirteen had gone the usual
Bottomley road liquidation or * reconstruction/ this
reconstruction being a polite euphemism for the
process by which investors who had invested perhaps
100 in shares agreed that the hundred pounds they
had invested were to be written down to a hundred
shillings or some such figure.
THE METHODS OF MR. BOTTOMLEY 87
But these latter years of his financial exploitations
covered the war period, wherein he had contrived to
restore himself to popular favour, had become a
national leader, and had killed multitudes of Germans
every week with his typewriter.
In 1915 he inaugurated his War Loan Club Sweep-
stake, with headquarters at Lucerne in Switzerland.
His prospectus was really a work of art, announcing
without hesitation or reserve that the * club is inspired
by the highest motives of patriotism.' Subscribers were
told that they were c helping the British Empire/ and
they were supplied gratis with pictures of Kitchener,
French, Jellicoe, Balfour, Asquith, and Lloyd George.
The prospectus was beautifully printed with the same
kind of type used in the printing of Bank of England
notes, and to put the final touch of proper * atmosphere '
to the document, there were affixed the magic figures
5000 in heavy black figures.
The patriots of the period were invited to purchase
as many as possible of these participation certificates at
2s. 6d. each ; and the certificates, pushed and peddled
all over the country, were supposed to give their
holders a chance of becoming prize-winners in a
great draw (with blocks of War Loan for prizes)
to be held in Switzerland on ist September 1915.
Ninety thousand gallant hearts responded. If a
citizen purchased i worth of tickets he ran a chance
of securing 20,000 worth of war bonds. It was the
golden opportunity of a lifetime. As Mr. Bottomley
' The Empire is your security.
Tou cannot possibly lose your money. 9
That did not happen to be quite true, for the ninety
thousand individual speculators did lose their money,
88 THE FINANCIERS AND THE NATION
all but a dividend of 3*38d. for each i they had
invested, and that 3*38d. they did not get back until
three years after they had purchased these participa-
It is difficult for us now to reconstruct the credulity
and humbug of these war years or to imagine the state
of affairs in which Horatio Bottomley (preaching
from a weekly pulpit in Lord Rothermere's Press)
had become one of the spiritual leaders of the nation,
demanding stridently that Germany should be shackled
with an indemnity
' that will take her 500 years to pay.'
He could emit without a blush such flatulences as
* Great Britain will tend more and more to become a free
Commonwealth with a Republican Government under Mon-
archial forms and a hereditary President. 5 l
He had gotten himself converted and wrote articles
with headings such as * My Mission : A Plea for the
Spiritual Revival of the Nation.' 2 He * heard a
voice from heaven say, Write ! * So he wrote. And
he received 150 per article for his writings.
He also promoted a campaign for a Business
Government, one of the undisguised essentials of
which was a place for Bottomley in the Cabinet. A
Business Cabinet with a Bottomley in charge of the
Treasury would have been a sight for the gods ! The
Sunday Pictorial (25/7/15) lent its powerful aid to the
Business Government project, and declared that the
Cabinet was Mr. Bottomley's c rightful place. 5 He
ran candidates at bye-elections for his Business Govern-
ment Party. He received 100 cash down for a
1 Sunday Pictorial) 31/10/15. a Ibid., 22/10/16.
THE METHODS OF MR. BOTTOMLEY 89
patriotic lecture, and it was subsequently asserted by
one who knew him well, that he kept three grades of
peroration for his speeches, one on the King and
Empire ; one on the * Land of Hope and Glory . . .
Mother of the free, God who made us mighty, make
us mightier yet ' ; and one about the Prince of Peace ;
the latter being specially effective with religious
audiences and individual auditors who had lost sons
in the War.
It was in these circumstances that the ninety thousand
hopeful investors, at Mr. Bottomley's request, posted
their participation money to Lucerne, without even
kissing it good-bye.
Some of us did our utmost to warn the public
against Mr. Bottomley's impudent grafts, though but
little heed was paid to our warnings.
As early as August 28, 1915, I published in the
Forward newspaper an article by Mr. C. H. Norman,
giving selections from Mr. Bottomley's career in the
law courts ; but apart from a little cheap bluff about
the possibility of legal action by Mr. Bottomley, which
I met by giving him the name of my solicitors, no
notice was taken of the accusations. In 1916 a Mr.
Lotinga had published several of these law court
selections in leaflet form, with added strictures of his
own, whereupon Mr. Bottomley offered 50 for in-
formatiqn which would lead to the discovery of the
printer of Lotinga's pamphlet. Mr. Lotinga promptly
stepped forward and claimed the 50, saying he was
the printer, and Bottomley humbly paid over the 50
and said no more about the matter.
During the next two years the charges against
Bottomley were being spread up and down the country
and were so undermining his opportunities for plunder
that he hit upon an ingenious scheme which he
go THE FINANCIERS AND THE NATION
thought would stop the campaign against him, at
least for some time. He arranged with a man called
Bigland to get a convenient c author 5 who would
reprint the C. H. Norman accusations in pamphlet
form, issue only six copies and then allow himself to
be sued by Bottomley for libel. At the trial the
dummy printer and publisher was to plead guilty
and offer humble apologies to Bottomley. Behind the
scenes Bottomley was to pay all the expenses, and the
printer and publisher was to receive a gratuity of 100
for his services in allowing himself to be sued ! Big-
land did in fact secure a man called John Greaney,
who, in due course, as arranged, was sued by Bottomley
for libel. On July 11, 1918, Bottomley was awarded
500 and expenses by Mr. Justice Darling and a
Four years afterwards on February 19, 1922
Bottomley and Bigland were in dispute in the law
courts at Shrewsbury again, and curiously enough,
before Mr. Justice Darling, when Bigland disclosed
the story of the bogus action in 1918. Here is a
transcript of the relevant passages in the trial at
* Mr. Comyns Garr : You say besides the 500 he owed you,
the third prize to you was to be " for services rendered."
What was that ? Introducing a man named Greaney against
whom Mr. Bottomley framed a case in the Law Courts. It
was a bogus case, the same as this is. Mr. Bottomley arranged
with Greaney that I was to print a libellous, scurrilous pamphlet
containing extracts of the doings of Bottomley, and then the
latter was to sue Greaney for damages. The case came before
your Lordship and a jury, and Mr. Bottomley got 500
' In answer to his Lordship, witness said the pamphlet was
written by a man named Norman.
' Then why was not Norman sued ? I cannot say.
' Was he a rich man ? I don't think so ; he hung around
THE METHODS OF MR. BOTTOMLEY gi
the Law Courts. (Laughter.) He is one of the Socialist
people. I have seen him recently in the Law Courts.
' Mr. Comyns Carr : Did Mr. Bottomley explain to you why
he preferred to sue Greaney rather than the real author ?
Yes ; he wanted to get a verdict in the Law Courts to frighten
every one else from doing such things.
' Mr. Justice Darling : But why sue Greaney instead of
Norman ? Greaney was merely the figure-head. He paid
Greaney 100 to be the figure-head. It was a framed-up
* Greaney had agreed to lose the action ? He agreed to put
in a nominal defence so that really Bottomley would only have
to address the jury as to damages. (Laughter.)
' Mr. Whiteley said he was assuming that everything Mr.
Bigland was saying was what Mr. Bottomley told him.
* In answer to his Lordship, witness said Mr. Bottomley got
a verdict for 500 and costs, but really he paid 100 and costs
* Mr. Justice Darling : I suppose I summed up in his favour.
* Witness : Mr. Greaney was so upset at the way Mr. Bottom-
ley conducted the case against him that I had to take him out
of court, otherwise there would have been a scene in court,
because Mr. Bottomley did not carry out his plans according
to what he told us. Greaney thought there would be little
said, but Mr. Bottomley's beautiful and eloquent address to
the jury was in such a style that Mr. Greaney was very dis-
tressed, and I had to get him out of court. I took him out
just before your Lordship summed up. (Laughter.)
' Mr. Justice Darling : And you say Mr. Bottomley got
500 and costs, and then he made a gift of 100 to Greaney
for his services ? Yes.
* Mr. Comyns Carr : Who paid Greaney's costs ? Me.
Bottomley gave them to me, and I paid them over to the
* That was one of the services you rendered to Mr. Bottomiey
which was taken into consideration when you received the
1000 ? Yes.'
Mr. Bottomley 's faked damages and apologies from
Greaney in 1918 greatly assisted him in his Victory
92 THE FINANCIERS AND THE NATION
Bond Clubs and Thrift Clubs where, according to
one of Mr. Bottomley's biographers, 1 the total ap-
propriation amounted to no less than 1, 172,939.
The same writer estimated that during his financial
career from 1889 to r 9 21 Mr. Bottomley had acquired
Promotion of Public Companies . . 2,868,561
From Journalism ..... 227,500
Sweepstakes ..... 250,000
Patriotics (including Government Subsidy ;
by or through the Ministry of Informa-
tion or Propaganda) . . . 37,ooo
Victory Bond Clubs .... 1,172,939
Total . . 4>55 6 > QQQ
These, of course, are gross figures, and from them
would require to be deducted what might be
called his working expenses. For example, he had
spent from first to last 430,000 on law costs
and 210,000 in judgement debts given against
But the end came when the public was permitted to
read the trial of Mr. Bottomley at the Old Bailey
with Mr. Travers Humphreys, K.G., for the Crown,
accusing Bottomley of having engaged in private
speculation with the funds of the Victory Bond Club
and the Thrift Bond Club. Bottomley's method had
been to borrow these funds upon his own 'security.
One ' loan ' of 100,000 he had applied to the pur-
chase of newspapers, and he had appropriated 22,500
from the Victory Bond account to such purposes as
the purchase of champagne and the maintenance of
1 The Rise and Fall of Horatio Bottomley. By * Tenax. 5 (Denis
THE METHODS OF MR. BOTTOMLEY 93
The jury decided that he was guilty, whereupon
Mr. Justice Salter declared :
* You have been rightly convicted of this long series of heart-
less frauds. These poor people trusted you, and you robbed
them of 1 50,000 in ten months. . . . You will go to prison
for a term of seven years.'
Bottomley, game to the last, demanded to know
if he was not to be entitled to say anything before
sentence was passed upon him.
* No/ replied Mr. Justice Salter ; ' not in the case
of a misdemeanour. 5 To which Horatio retorted :
' I should have had something rather offensive to say
about your summing-up/
But what the victims who had lost their money
thought, offensive or otherwise, is not upon record.
WHITE AND LOEWENSTEIN:
LEADERS OF MEN
' He sold the horse, it seems, and walked the Fair in search of
another. A reverend-looking man brought him to a tent, under
the pretence of having one to sell. "Here," continued Moses,
" we met another man, very well dressed, who desired to borrow
twenty pounds upon these [a gross of green spectacles with silver
rims and in shagreen cases] saying that he wanted money, and
would dispose of them for a third of their value. The first
gentleman, who pretended to be my friend, whispered me to
buy them, and cautioned me not to let so good an offer pass." '
GOLDSMITH, The Vicar of Wakefield.
THE speculators and money-changers who call
themselves * The City ' always strenuously denied
that James White was a financier who played within
the rules, and when in June 1927 he locked himself
in a bedroom in his Swindon mansion, and drank
prussic acid and chloroform, The Times published
an obituary notice, declaring that he was only
regarded * as a particularly bold speculator with a
passion for deals on a large scale with corresponding
White himself left a valedictory letter saying :
' I have entertained Royalty, I have called dukes and earls
by their pet names, been on the inside of politics, owned a
yacht, run a racing stud, raised over 150,000,000 for under-
takings, made more than 750,000 in a day, have given large
sums to charity, and have been feted by all, and called Jimmy
White by a world of people.'
WHITE AND LOEWENSTEIN 95
And this man who had called dukes by their pet
names, and who had raised 150,000,000, began as a
message boy in Rochdale ; became a bricklayer ; at
the age of nineteen scraped together 100 and bought
a travelling circus ; made money for two years from
his circus, then sold out and is alleged to have used
the money he obtained by its sale to crush a building
trade employer against whom he had nursed a grudge
from his bricklaying days.
James White was a born gambler, and he appears
to have dived into any enterprise where there was an
opportunity of big gains. He organized boxing con-
tests, one of which, however, public opinion compelled
him to cancel that between Jack Johnson, the negro,
and Bombardier Wells, at Earls Court, for a stake of
He got into theatrical enterprises and became chair-
man of Daly's Theatre : was on the Board of the
Tyre Investment Trust ; dabbled deeply in cotton-
mill finance during the boom period ; and was a
leading man in the group which formed the Amalga-
mated Cotton Mills of disastrous memory : organized a
group which bought the Covent Garden estate in cen-
tral London from the Duke of Bedford for 8,000,000 ;
purchased as a speculation the whole town of Shaftes-
bury, and the site of the General Post Office at St.
Martin-le-Grand ; engaged himself in the flotation of
a large humber of public companies and, as the
Americans say, e cleaned up big, 5 so big that at
one period he could afford to lose 1,000,000 in
Dunlop Rubber. Indeed, he was a member of
the Dunlop board in the days of the great Hooley
The turf had a fascination for a man with White's
instincts, and for a time he had a steady run of racing
96 THE FINANCIERS AND THE NATION
prosperity, his horse Ivanhoe winning the Cesare-
witch in 1919, and in 1920, upon the same event,
he is reported to have pocketed 100,000 from a bet.
But his achievements on the racecourse paled be-
fore the glories which made him a newspaper hero.
When he betted 30,000 upon the rolling of a penny
towards a sixpence lying on the floor, and when the
story of the hazard was properly described in the
Press, his reputation as a leader of men was made.
It was a gamble on oil shares that finished him.
He and Sir Edgar Mackay Edgar and Mr. W. B.
Mitford were prominent in the launching of a
9,000,000 company called British Controlled Oil-
During the years 1924-6 the shares of this concern
fluctuated wildly between 53. and 253., and White
set himself to secure majority control with a view to
the ultimate sale of his holding at an inflated price
in the American market.
White bought great blocks of British Controlled
Oilfield shares in the expectation that the market
would rise : but unfortunately for him Sir Edgar
Mackay Edgar had other views, and on the eve of
settling day on the Stock Exchange hundreds of thou-
sands of shares were thrown on the market, the price
falling by 5$. 6d. a share. White was short of 250,000
to settle with the brokers, failed to raise the money in
time, and quietly poisoned himself. *
When White passed out, he had contracted to buy
Wembley for a sum of 300,000, and his offer had been
accepted, yet he left nothing but eight racehorses,
unsecured liabilities of hundreds of thousands of
pounds, and a debt of 1,700,000 to the Income Tax
WHITE AND LOEWENSTEIN 97
In his heyday believed to be one of the richest men
in the world, Captain Alfred Loewenstein, of Melton
Mowbray, Brussels, and Biarritz, vanished in mid-air
from his lavishly appointed aeroplane when flying over
from Croydon to the Belgian coast in July 1928.
His disappearance greatly upset the artificial silk
and electricity shareholders in two continents. But
although Loewenstein committed suicide (when his
body was discovered in the sea, a post-mortem ex-
amination disclosed the presence of * toxic matter'),
and although he was evidently worried by a heavy fall
of 12,000,000 in the value of the shares in his Inter-
national Holdings Company, he was still able to leave
his widow a small dot of 5,000,000, and there would
appear to be no suggestion that he feared exposure
of his money-making methods upon the ground of
illegality, or that the police anywhere were camping
upon his trail. To this day his suicide is inexplicable.
Loewenstein, for all his wealth, was a showman.
Even on his suicide voyage, he flew across Channel
accompanied by two secretaries, a valet, and two
typists. In the earlier months of 1928 he had gone
to Canada with an entourage of four secretaries, two
typists, a private detective, a chauffeur, an air pilot,
a masseur, and a valet.
At Biarritz, when he bathed in the sea, he was accom-
panied by two valets, two secretaries, and a masseur.
He kept a suite at Claridge's in London, and one at the
Ritz in Paris.
He was born in Brussels in 1897, his father, a stock-
broker, sending him over to Folkestone to be educated.
Afterwards returning to Brussels when about twenty-
two years of age, young Loewenstein laid the basis of
his fortune by daring, but successful, speculations upon
the Stock Exchange.
98 THE FINANCIERS AND THE NATION
He floated electricity concerns in two continents
Brazilian light and power and traction companies,
Rio de Janeiran, San Paulan, and Mexican trams,
the International Hydro-Electric Securities Corpora-
tion (registered in Canada), and Barcelona traction,
light, and power.
Apparently, the chief Loewenstein effort in British
finance lay in his effort to secure control of British
Cellulose, now called British Celanese, a pioneering
firm in the manufacture of artificial silk. In that con-
cern Loewenstein held 700,000 of Debenture Stock,
and had a royalty upon all the products.
Later, however, he quarrelled with the brothers
Dreyfus, the Swiss chemists who were the technical
directors of the business, and he disposed of his British
holding for 1,000,000. But through his International
Holdings Company he still dominated, or sought to
dominate, artificial silk production in Germany,
Belgium, France, and Holland ; and he had some
interest in a Polish concern.
There is no trace of him in artificial silk in America,
but his great ambition was said to have been to amal-
gamate and control the world's electricity plants, and
he seems to have nibbled at the idea (later developed
by the Swede Krcuger) of buying trade monopoly
rights from any Government in urgent need of hard
In the year 1926, for example, he offered tHe Belgian
Government a loan of 10,000,000, free of interest for
one year, but with other conditions attached to the
proposal, which were never publicly disclosed. To
the French Government he made some similar offer.
In both cases his offer was refused.
I have already said that no one has, so far, suggested
any reason why Loewenstein should have committed
WHITE AND LOEWENSTEIN 99
suicide when he did. True, it is known that a syndicate
of European banks was at war with him although the
reason for the feud is obscure ; it is, indeed, one of the
major mysteries of the financial underworld during
the past dozen years and it is known that in the
summer of 1928 this syndicate had pulled down the
value of the shares in his International Holdings
Company from 31,000,000 to 19,000,000 ; true,
also, that he had been foiled in his attempt to secure
control of the Bank of Brussels.
But he was still a multi-millionaire ; was still in the
early 'thirties ; and was still with a prospect (if the silly
system which permits it should last long enough) of
realizing his great ambition of being the recognized
king of all the electricity and artificial silk in the world.
Why, then, commit suicide ?
Hydro-Electric shares had fallen under the attack
of his financial enemies from 85 1 dollars on May 7 to
25 dollars on July 5 ; that was a very considerable
smash ; but it in no wise explains his stepping out of
an aeroplane flying high over mid-Channel when he
still possessed a private fortune of over 5,000,000.
Other money maniacs had their Napoleonic dreams
of world conquest dissipated in the great price de-
flation in post- War years, but none of these enemies of
civilized men had committed hari-kari so long as he
retained five millions in his private possession.
Loewdhstein's death, then, remains a mystery.
Immediately after his dramatic disappearance, all
discussion and speculation upon his high finance
suddenly, and completely, disappeared from the Press.
But his seizure of the control of 30,000,000 or
40,000,000 sterling in electricity and artificial silk
in a brief ten years' scramble is no mere hypothesis ;
it is a fact ; and that he was permitted to make it ; and
100 THE FINANCIERS AND THE NATION
that he was permitted to levy a tribute, real and cal-
culable, upon the silk stockings of millions of women,
and upon the power of light and traction of the industry
of a dozen sovereign States, is a central and vital
element in our economic and social history. We ignore
such facts or remain in ignorance of them, at our
THE KREUGER SWINDLES
* A negro preacher, having vainly attempted to collect money
from a peripatetic flock, thanked God that he had got his hat
back.' Sir MAX PEMBERTON.
VERY successful operator in the realm of High
-^Finance must of necessity adopt a different tech-
nique from his immediate predecessors. Whenever a
flock of investors are robbed by a new device, the
device itself becomes public knowledge, and the
investing class generally is placed upon its guard for
at least a generation against a repetition of that
particular form of fraud. New methods of preying
upon the credulities of the hopefully acquisitive public
must therefore be employed, and when these methods
are exposed, they must in turn be discarded for others.
The confidence trick has to be continuously varied,
and the grand scale operator who would clean up
millions dare not resort to hackneyed methods.
The most daring rogue of post- War Finance, Ivar
Kreuger the Swede, opened out in new territory. He
set himseflf to secure a world monopoly of a commodity
in daily use in every household, and to achieve his
ends he purchased monopoly rights from needy
Governments : the necessary bank credits for his
loans to these needy Governments he raised by the
simple expedient of forging bonds which he deposited
with the banks as * security. 5 And he created some new
banks and got control of other banks in order to enable
102 THE FINANCIERS AND THE NATION
this transfer of depositors' money, in exchange for his
forged securities, to be readily made. The trick was
really simplicity itself. The banks collected the deposits
from customers. Kreuger collected the deposits from
the banks, giving them forged Italian Government
bonds in their place. Thus matters were kept all right
for the banks' auditors and the balance-sheets, the
auditors not being aware that the * securities ' were
forged, and the existence of the ' securities ' never
coming to the knowledge of the Italian Government.
When a government was in financial difficulties
and, goodness knows, there have been many of them
in that position since the Armistice in 1918 Kreuger
would offer to arrange a huge loan upon the condition
that he was granted a monopoly for the sale of matches
within the boundaries of the borrowing country.
The needy government got its credits all right by
Kreuger's impudent forgery of the State bonds which
he had handed over to the banks in Sweden and else-
where as cover. And not only were these bonds
fraudulent, but every time a safety match was struck
in the borrowing country a disguised tax had to be
paid to this multi-millionaire Swedish crook.
Born at Kalmar, Sweden, in 1880, to a middle-class
family, his father a match manufacturer in a small
way ; nothing remarkable about his boyhood ; be-
comes an engineer, and in 1903 is in Lond9n in the
employment of a well-known firm ; drifts to South
Africa, where he speculates in real estate at Johannes-
burg ; is next found in Canada and the U.S.A. in
1905 ; two years later is back in Sweden running a
concrete engineering business with a man called Paul
Toll; by 1911 Kreuger and Toll have become a
limited liability concern with a capital of 50,000 ;
two years later Kreuger sets out to amalgamate and
THE KREUGER SWINDLES 103
trustify small Swedish match factories ; steadily he
adds business to business ; the War aids him ; by
1917 he is managing director of a Swedish match
company operating a capital of 5,000,000 ; in 1919
the capital has grown to 20,000,000 ; a year or two
later it is 40,000,000, and Kreuger is paying out
dividends of 12 and 15 per cent.
A national nay, an international hero, for his
shareholders were by that time scattered over two
continents, and his 15 per cent, stocks regarded every-
where as a gilt-edged security !
From this point onwards, it is difficult to disentangle
the threads in the great Kreuger web of financial
manipulation. And when he shot himself in Paris in
March 1932, so complicated and confused were his
affairs that the Swedish committee of investigation
entrusted with the examination of his means and estate
had to begin tracing his tortuous operations through
nearly 400 subsidiary concerns in timber, wood-pulp,
iron-ore, banks (at least one in Holland created for no
other purpose than the fraudulent manipulation of
imaginary, and the duplication of genuine, assets), and
He controlled many companies, from gold mining,
to the Swedish Ericcson Company responsible for the
automatic totalisators. His talons were all over the
world in banks in Ecuador ; in the national finances
of Latvia ; in Rumania and the kingdom of the Serbs
and Croats and Slovenes ; when he died he was
on a fair way to dominate the match industry in the
United States as he had already done it in Germany
although when subsequently the bluff was called in
the New York Courts, his International Match Cor-
poration could only produce cash assets of 33,000
against an indebtedness of 20,000,000.
104 THE FINANCIERS AND THE NATION
In the British Match Corporation, with a capital
of 6,712,500, Kreuger 5 s Swedish Match Company
had holdings of 1,856,250 ordinary shares. So he was
apparently nibbling for control here, too.
But that apart, according to the report issued by the
British Protective Committee, 1 8000 separate British
investors had been bitten. The face value of their total
holdings was i 1,392,000, but inasmuch as their stocks
had been purchased at a huge premium it has been
estimated that the real amount of the loss to British
investors was about 50,000,000. 2
Let us cast our minds back to the year 1929, the
period of the Young Plan for the financial rehabilita-
tion of Germany. The Young Plan so-called because
it was sponsored by Mr. Owen D. Young, a leading
financier and official representative of the President
of the United States need not concern us here beyond
to note this, that it involved the raising of a sum of
25,000,000 by the German Government.
Forward into the breach stepped Ivar Kreuger, the
international safety match king. He would raise the
25,000,000 for Germany conditionally upon the
German Government granting him a monopoly for
the sale of matches within its territories. Kreuger's
terms were accepted.
For every 100 nominally borrowed, only 93 was
in fact to be paid, but the German Government, of
course, was debtor for the 100 and had to pay 'interest
upon that 100 at the rate of 6 per cent.
The German match monopoly was given to a newly-
created company, the Deutsche Zundholz Verkaufs
A.G., where Kreuger held half the shares. The com-
1 Times, 18/7/32.
2 Mr. Francis Williams declared in the Daily Herald that this
was indeed a ' conservative ' figure.
THE KREUGER SWINDLES 105
pany was to be allowed to earn 8 per cent, profits per
annum, and all remaining profits after the 8 per cent,
was paid were to be divided in equal shares between
the German Government and the Swedish Match
Company (again Kreuger).
But to get these profits the retail price of matches
was to be increased forthwith in Germany from 2 Jd. to
3d. per packet of ten boxes, an increase which was
estimated to yield no less than 700,000 per annum.
Under this ingenious scheme the whole German
nation 60,000,000 people were to pay an indirect
and disguised tax to the financial Colossus at Stock-
holm and his backers.
Kreuger had no doubt whatever about his ability
to raise the 25,000,000. If he could not raise the
money in a bona fide way, he would raise it otherwise.
And one of his otherwise methods was the expedient
of wholesale forgery.
He simply invented bonds and deposited the forged
bonds with the banks which he either owned or con-
trolled as * cover ' for huge blocks of bank depositors'
money which he calmly appropriated in exchange for
the ' securities.'
He forged forty-two Italian Treasury Bills, each
having a denomination of 500,000 a total of
21,000,000 purporting to be signed by the Italian
Minister of Finance. These, with other 6,000,000
forgeries 'of Italian Government promissory notes, he
used as backing for his German (and other) Govern-
Some of his fellow-directors in Sweden subsequently
pled that they thought the Italian bills were genuine,
the more so as Kreuger pledged his colleagues to
secrecy about the deal, on the ground that disclosure
might involve serious complications for Italy ! What
Io6 THE FINANCIERS AND THE NATION
it did do in the end was to involve serious conse-
quences for Kreuger's fellow-directors.
He appears to have projected negotiation for a
similar 7,200,000 loan (180,000,000 pesetas) to the
late dictator of Spain, General Prima de Rivera.
The Times l quoting the report of the official investi-
gators, says that the contract was found in Kreuger's
safe, but that the money was never paid over to Spain,
although the loan was shown as an asset on the books
of Kreuger and Toll. We have never yet been favoured
with the full story of this enterprise.
The name of a cousin of the ex-King of Spain has
been dragged into the story as a vigorous opponent,
and the late King of Spain, Alphonso, was compelled
in person to issue a firm denial that he was privy
to the Kreuger plot against the Spanish people.
What we do know for a surety is that Kreuger paid
a Spanish confederate 66,000 to facilitate the con-
tract, and that the confederate bolted with the
money, and when threatened with prosecution, calmly
threatened the publication of documents which would
involve many highly-placed Spaniards. So there was
Again, in the Kreuger and Toll balance-sheet for
1930 there appears an asset of 34,600,000 florins as
lying with ' The International Bank and Finance
A.G., Danzig, 5 although, as a matter of fact, this
bank did not open its doors until the first 'week of
January 1931, and never at any time did Kreuger
and Toll have any money there at all. Sheer brass-
faced impudence could scarcely go much further than
In Holland the balance-sheet of the Garanta Bank,
which was owned secretly by Kreuger, showed assets
THE KREUGER SWINDLES 107
of 5,000,000 in Poland ; these * assets/ in fact, were
simply money extracted from the bank by Kreuger.
Various estimates have been given of the extent of
the Kreuger swindles, some placing the frauds as high
as 150,000,000. But in September 1932 the admin-
istrators of Kreuger's estate issued an approxi-
mate estimate showing his personal deficiency at
53,600,000, and the deficiency in the firm of Kreuger
& Toll at 13,600,000, a total of 67,200,000.
In their final report upon Kreuger's affairs issued
in Stockholm on January 9, 1933, Messrs. Price,
Waterhouse & Company, the accountants, declare
that between January 1918 and March 1932, Kreuger
personally appropriated that is, stole 432,046,000
kronen (with the kronen at 1 8 to the i), nearly
But what did he do with 24,000,000 ? What
could he do with it ? How could he or any one else
spend 24,000,000 in the space of fourteen years and
three months ? Where did the money go ? And
why were not his defalcations and forgeries suspected
or detected by some one in the army of clever accoun-
tants and bankers and brokers who so authoritatively
warn democracy to leave the control of finance to
the wise men who understand it ?
Twenty-four millions sterling, illicitly extracted by
one man ! Clearly the financial system as it is operated
to-day does not provide adequate checks against large-
scale speculation and fraud.
Nor even yet has the full tale of Kreuger's manipula-
tions been told to us.
The Dagens Nyheter, one of the leading organs in
Stockholm, in July 1932 openly and specifically
alleged that Kreuger personally gave Herr Ekman, the
then Swedish Prime Minister, 50,000 kronen for his
108 THE FINANCIERS AND THE NATION
electoral funds ; that he also gave by proxy to
the leaders of the Swedish Conservative Party, 25,000
kronen ; and that he gave financial assistance (amount
not announced) * to the anti-Muscovite section of the
Communist Party, 5 whatever that may mean.
In August M. Ekman was compelled to resign his
chairmanship of the People's Party, and King Gustav
obliged him to tender his resignation as Prime Minister.
An interesting story here, if we could get at all the
details of it.
And the tenth report of the Police Commission of
Inquiry, issued at Stockholm at the end of June 1932,
declares that one of Kreuger's fellow-directors had
accused M. Lofgreu, when he was Prime Minister of
Sweden in 1927, of * having advised Kreuger of
methods of issuing debentures by which he could
elude Swedish taxation.' In one year alone, 1928,
Kreuger is alleged to have netted 830,000 from this
debenture trick whatever it was.
And the same report estimates that he, Kreuger,
made a profit of 2,000,000 between 1927 and 1930
out of Belgian and French Government stocks.
Yet how silent the usually enterprising Press sleuth-
hounds in Europe are about this graft in high places.
Kreuger bribed the political parties and the Press in
Sweden. Does any one believe that he abstained
from similar corruption elsewhere ?
He induced government after government* to give
him a monopoly of the sale of matches. Does any
one believe that this private ' enterprise ' was conceded
the power to rob the nations without lavish pre-
liminary distributions of baksheesh ?
In France, Kreuger found that the sale of matches
was a State monopoly ; he could not get in there.
But he procured a monopoly for the sale of match-
THE KREUGER SWINDLES IOQ
sticks from aspen wood, and he got his shares quoted
on the Bourse. In return, he raised a loan of
15,000,000 in America for France.
He tried the game in Soviet Russia sought her
timber forests, but was refused ; could get no accom-
modation there ; and boiled over in wrathful Press
communiques when he found Russia underselling his
matches by from 50 per cent, to 75 per cent, in price,
in the neutral markets.
It was America that finally pulled him down, and
there is a story, by no means an improbable one,
that they tell in Wall Street of how it was done.
One group of bankers had urged President Hoover
to propose a moratorium for a year upon Germany's
State debts ; this meant that Germany would
not pay interest or sinking fund upon Kreuger's
25,000,000 loan to Germany. Another group, which
had lent millions of good dollars to Kreuger, strongly
urged the President to exempt the Kreuger loan to
Germany from the operation of his moratorium.
The non-exemptors won, and in March 1932
Kreuger, having to pay his creditors and finding his
income stopped, and being unable to carry on a bluff
with forged bonds any longer, ended his life of inter-
national piracy, chicane, and fraud with a revolver
shot, in his flat at the Avenue Victor Emmanuel III,
THE DISSIPATION OF BRITISH THRIFT
* A fool and his money be soon at debate.' TUSSER, Good
* We may be moving towards an era of world sanity in which
international commerce will be less subject to the interests and
juggling tricks of bankers and high financiers.' Rt. Hon. D,
IN previous chapters the reader has seen some-
thing of the almost incredible waste and loss
involved during last century in the system of financier
manipulation of our capital investments both in the
home and foreign markets. Of the closing years of
that century, 1890 to 1897, the Official Receiver
* There had been lost to the community and gone into the
pockets of the unworthy no less a sum than 28,159,482 ;
made up of losses of creditors dealing with companies,
7,696,848 ; and of the loss to the wretched contributories
or shareholders, 20,462,633.' l
But these figures relate to companies wound up by
compulsory order only, and exclude all cases of loss by
' reduced capital. 5
The MacMillan Committee on Finance and Industry
(1931) 2 selected the year 1928 for an examination
of the results of investment in public companies in
1 Quoted in The Decay of Capitalist Civilization, by Sidney and
Beatrice Webb, p. 107.
8 Cmd. 3897, p. 166.
DISSIPATION OF BRITISH THRIFT III
the home market. During that year the British
people subscribed i 17,000,000 for shares and de-
bentures in 284 companies. Two and a half years
later, that is by May 31, 1931, the total market value
of the 117,000,000 of shares and debentures had
fallen to 66,000,000, a dead loss of 47 per cent, to
the investor. Indeed the loss must have been much
greater than that, because many of the shares were
unloaded upon the investor at a high premium.
The MacMillan Committee go on to tell us that of
the 284 companies in question, no fewer than 70 had
already been wound up, and the capital of 36 others
had no ascertainable value, the losses upon these
106 companies amounting in all to 20,000,000. x
Spurlos versenkt. Sunk without trace ! And the poor
victims of the Hooleys, Hatrys, Bottomleys, and their
kind, the poor victims who lose 66 per cent, of their
investments in three and a half years, are befuddled
into believing that it is the Socialists who would
confiscate their capital !
In post-war years the speculator and the share
gambler fastened on the Lancashire Cotton Industry,
picked it clean, and then left it smothered under huge
and impossible bankers' debts. 2 Professor Daniels in
January 1928 told the Royal Statistical Society of 129
cotton companies with a paid-up capital of 19,000,000
which had been purchased by speculators during the
cotton boom of 1920 for 38,250,000. Six months
later the balance sheets of these companies showed
loans of 17,000,000, bank overdrafts of 5^ million
1 For a subsequent examination of these figures see the Economic
Journal for September 1933, p. 453 et seq.
2 Lancashire under the Hammer Bowker (Hogarth Press). Also
pamphlet by Zeph Hutchinson, secy., Bacup Weavers, Hands off
our Wages and Hours.
112 THE FINANCIERS AND THE NATION
pounds and debenture loans of 1,200,000. By the
end of the year 1927 Mr. S. S. Hammersley, M.P.
for Stockport, had to report in sorrow to the House
of Commons that 200 mills were in the power of the
banks and that 90 per cent, of these 200 mills were in
the financial control of four banks. 1 The Balfour
Committee on Industry and Trade reported that to
the best of their knowledge the speculators had
purchased many cotton mills at about eight times the
paid-up share capital of the concerns acquired. Upon
210 of these over-capitalized companies dividends
fell to an average of 1*3 per cent, per annum during
the seven years 1921 to 1927, while in 65 cotton mill
companies which had managed to escape the blight-
ing hand of the reconstructing financier, dividends
averaged, during the same period, the much higher
figure of 8-7 per cent. 2
The banks carrying the loans and the new share-
holders carrying the inflated value shares turned with
one voice and one accord, demanding that the workers
in the cotton industry accept wage reductions as part
of the common sacrifice, to make good the years that
the locusts had eaten. That, as always, is the ritual
in the wake of a reckless financial skinning of an
The Balfour Committee, greatly daring, expressed
the opinion that :
* It is one of the most disquieting phenomena of recent
years that shrewd business men should have allowed a great
staple industry to fall so easy a victim to speculators and
1 Speech, 19/12/27.
2 Part II. of the Survey of Industries. Committee on Industry and
Trade, 1928, p. 23.
DISSIPATION OF BRITISH THRIFT 113
It might have added some suitable commentary
upon the fact that the new victimized proprietors
had promptly taken whatever steps lay in their power
to compel, through lowered wages, the workers in the
industry to share their burdens.
And so far as our national investments abroad
are concerned the fun is even more fast and even more
The MacMillan Committee on Finance and Industry
declared that * in some respects the City is more
highly organized to provide capital to foreign countries
than to British Industry.'
There is, of course, a common and carefully
fostered delusion that these investments of British
savings in foreign countries always, and every time,
serve British ends and British purposes, and that
the export of credit always and every time goes
out in the shape of capital goods to develop the
World and increase the buying power of its
Neither of these assertions is true.
Our private speculators with our national credits
and savings, have speculated and gambled in all
manner of enterprises, definitely and demonstrably
inimical to the interests and the national policy of
In foreign armaments, in fortifying the Dardanelles,
in rum-running, in cheap labour factories for the
manufacture of jute cloth in Bengal, or for coir mats
in Travancore, in bolstering up reactionary and
oppressive dynasties in a thousand such directions
our national capital has been exported.
The Times on October 14, 1919, carried a two-
column advertisement headed
114 THE FINANCIERS AND THE NATION
* Chinese Government 8 per cent. Sterling Treasury Notes.
1925! * 928*
' Issued to Vickers Limited by the Chinese Government in
virtue of an Agreement dated the First day of October 1919,
the signature of which and its sealing by H.E. the Chinese
Prime Minister has been officially communicated by the British
Minister in Pekin, through H.M. Foreign Office to Vickers
The loan was issued under licence from the Treasury ;
it was handled by Lloyds Bank, and the prospectus
stated that the loan was for the supply of aeroplanes
and aerodromes. Preferential consideration was to
be given to applications from existing shareholders
in Vickers Limited. The total amount of issue was
1,803,300 ; the rate of interest was 8 per cent.,
and only 98 was required to be subscribed for each
100 of stock.
Needless to say, this loan is in default. The
investors' money is gone.
The armaments of foreign countries are a much-
sought-after field for speculation by our finance houses.
In 1909 we find Messrs. Vickers & Armstrong-
Whitworth creating a subsidiary company in Japan,
the Nippon Steel Works. But there were other firms
competing for the armament orders of Japan, and
our finance houses seem rather to have struck a bad
patch in the Far East after the Japanese Naval bribery
trials in June and July 1914, when the Japan Weekly
Chronicle reported in full the extraordinary Mitsui
case, wherein the Japanese Admiral Fujii was charged
with accepting bribes to the extent of 40,000 from
certain British armament firms.
From Far East to Near East ! About the same
period our c savings ' were in part diverted to
DISSIPATION OF BRITISH THRIFT 115
strengthening the naval armaments of Turkey, as the
following excerpt from the London Times (3/12/1913)
bears witness :
' A contract was signed to-day with the Armstrong- Vickers
group for the reorganization of the Turkish Naval Dockyards.
The Government hands over to the Armstrong- Vickers group
the Arsenal and Docks on the Golden Horn, with all the exist-
ing machinery and buildings. It likewise provides for a naval
base at Ismid. The English group finds the capital for the
exploitation of the works, and supplies the technical knowledge
and control essential to the success of the undertaking.'
Relatives of the British men who died a couple of
years later at the Dardanelles, please note !
Again, British ships were sunk and British lives
were lost in the Mediterranean Sea during the War
by torpedoes fired from Austrian submarines. But
were not the torpedoes manufactured in what had
been the Whitehead Works at Fiume, Hungary, and
had not Vickers been large shareholders in the concern ?
And did not Mr. Philip Snowden (as he then was)
say in the House of Commons in the course of his
speech on the Naval Estimates for 1914 that :
* Submarines and all the torpedoes used in the Austrian Navy,
besides several of the new seaplanes, are made by the Whitehead
Torpedo Works in Hungary. . . .
And here beside me, as I write, is a copy of the
prospectus for a new issue of capital to the great
Czecho-Slovakian Steel Corporation, the Skoda at
Plzen. The date is March 1926 ; the issuing house
is the National Provincial Bank in London : the
capital wanted is 2,500,000 5 the rate of interest
offered is 7^ per cent. ; the money is wanted to
develop what is described as ' the largest steel and
engineering works in Europe in one ownership ' ; in
the prospectus we are assured that the Skoda manu-
Il6 THE FINANCIERS AND THE NATION
factures steel ingots, castings, forgings, locomotives,
gas engines, steam turbines, motor-cars, tractors,
aeroplanes, and machinery of all kinds. So in 1926
our money went to Czecho-Slovakia to stimulate
cut-throat competition with our already hard-pressed
steel and engineering industries. And the British
and Allied Investments Corporation of London under-
wrote (i.e. guaranteed) the issue.
In the same year, the German city of Hamburg
applied for a loan of 6 per cent., offering 100 scrip
for every 93 los. paid, whereupon there was a rush
for participation by the money lords of the London
market ! The loan was subscribed several times over
within a few minutes of the lists being opened.
And again in October 1926, Belgium applied for
a loan, offering 7 per cent, interest and 100 scrip
for every 94 paid. This time the City was frantic.
It actually offered between 200,000,000 and
300,000,000, and one applicant alone offered
But when in March 1926, the British Dominion of
New South Wales sought a 4,000,000 loan at 5 per
cent., she could only get one-third of her request ;
and when in the following September she tried again,
offering 5 per cent, and 100 scrip for every 97 paid,
only 15 per cent, of her loan was subscribed by the
Empire patriots of the City.
Sir Arthur Salter, K.C.B., lately Director of the
Economic and Finance Section of the League of
Nations, and (prior to that) Secretary to the British
Department of the Supreme Economic Council, has
released some not-to-be forgotten material from his
dossier. 2 He tells us that in the two years, 1927 and
1 Manchester Guardian, October 28, 1926.
2 Recovery, by Sir Arthur Salter, K.C.B., pp. 101-5.
DISSIPATION OF BRITISH THRIFT 117
1928, which immediately preceded the depression,
Germany borrowed from British and American
investors over 2000 million dollars (say 400,000,000)
or more than Jive times the amount payable in reparations.
In the same period, South America and Australia
were both heavy borrowers. And in an inquiry held
subsequently by the Finance Committee of the
American Senate the allegation was made that
* $415,000 has been paid to a son of an ex-President
of Peru, for his assistance in floating loans of the total
value of $100,000,000 for the account of the Peruvian
Government.' x Further references to the matter
appear in the Times (23/11/33).
But to return to Sir Arthur Salter and his disclosures.
That distinguished civil servant declares :
* When hostilities broke out between Bolivia and Paraquay,
both League members, in December 1928, their recent financial
history was naturally looked into in view of the possibility of
financial pressure being needed in accordance with Article 16
of the Covenant. An interesting fact emerged. Some little
time before a foreign issuing house had arranged a substantial
loan to Bolivia, nominally for the construction of railways and
similar purposes. A few months afterwards it became known
that the money had been expended, not on roads, but on arma-
ments. In spite of this, a further loan was then arranged
through the same issuing house when the last preparations
were being made before the action against Paraguay. The
point of this incident is not that it is exceptional but, on the
contrary, that it is difficult to say that it contravenes generally
And he sapiently comments that :
* When a Government is tempted to rash adventure it is easy
to realize how greatly the temptation may be increased if,
at the crucial moment, a large loan is dangled before its eyes
by foreign financiers.'
1 Times, 9/1/33.
Il8 THE FINANCIERS AND THE NATION
And here are other glimpses from Sir Arthur Salter
of the glories of the dissipation of thrift system.
* The investor is now suffering from the Brazilian Mora-
torium. He would find it instructive to inquire where his
money had gone. Since the war, the Brazilian Federal Govern-
ment, States, and Municipalities have issued long-term loans
abroad amounting to about $800 million. These include sums
provided in 1924 for the bodily demolition of a hill in Rio at a cost of
about $15 million ; $25 million in 1922 for electrifying the Central
Railway of Brazil, which has not been electrified ; $20 million or more
for a (Rio Claro) water supply scheme which has to all intents and
purposes been abandoned in favour of another scheme.
* The record of Columbia is even more instructive. Between 1924
and 1928, it borrowed about $/jj? million. A large part of this was
devoted to constructing a railway to connect two valleys separated by a
range of mountains about 9000 feet high. There was no commercial
justification for it, since both valleys had their own outlet to the sea. A
very expensive tunnel through the top of the mountain range was begun
and then abandoned ; and while the Federal authorities were driving
a tunnel through the mountains the local authorities were making a
costly road over them. I have had a vivid account from one who
was in Columbia at the time, of the way in which the offers of
competing lenders resulted in the public authorities incurring
greater and greater obligations for these extravagant ventures.
. . . Numerous operations of a similar, or worse, character
could be quoted from the financial history of Europe in the
And as Lord Beavcrbrook stated in a public
speech in Edinburgh in January 1932, our finance
houses had been discovered borrowing in London
at 3 per cent., lending to Germany at 8 per cent,
(the astute Germans in turn lending to Russia and
Austria at 12 per cent.) ; and when Germany was
unable to repay, the City set up a unanimous demand
that the British Treasury should cover up their (the
City's) disastrous speculations. And not only that,
but with no little impudence they contrived to divert
attention from their folly and greed by blaming the
DISSIPATION OF BRITISH THRIFT Iig
resultant finance crisis upon the unfortunate un-
employed and the extravagant weekly dole they were
alleged to be receiving.
This admission by Lord Beaverbrook, that one of
the prime causes of the panic of 1931 was reckless
lending to Germany, had indeed previously been
made in the Report on Empire Monetary and
Financial Policy published jointly in October 1931
by the Federation of British Industries and the
Empire Economic Union. There we were told
* Confidence in the stability of our position began to be shaken
when it was realized how seriously the support we had given to
various weak positions, more particularly in Austria and Ger-
many, had depleted our own liquid resources.'
And the Royal Institute of International affairs
published in 1933 a Report of an influential Com-
mittee under Sir Charles Addis l which declared (p. 6)
that Great Britain had gradually drifted ' into borrow-
ing short and lending long, and so putting herself
into a position in which she was no longer mistress of
her own financial destiny.'
The precise amount of this short-term British
money lent to Germany is difficult to discover. .The
Monthly Review of Lloyds Bank for October 1931,
while minimizing as far as possible the effect of the
locked-up British cash and credit in Berlin, admitted
that there was a net amount of c about 70,000,000,'
' the fact that Germany was unable to repay London no
doubt added to the general feeling of distrust.'
Mr. Beaumont Pease, the Chairman of Lloyds
1 Oxford University Press.
120 THE FINANCIERS AND THE NATION
Bank, addressing the Newark Chamber of Commerce
in the succeeding month, 1 declared that the amount
of British credit given by British bankers to Germany
during the crisis had only been ' normal,' and he
quoted the Basle Committee which showed that
British credits to Germany amounted to 20*4 per
cent, of Germany's total credits from abroad.
Subsequently the Economist put the frozen advances
to Germany from the London Money Market at
But there is ample evidence that even while the
Labour Government was in the financial rapids and
while there were steady press campaigns in full blast
about an adverse trade balance, the London Money
Market was quietly but persistently exporting credits
On November 28, 1930, the Times explained how
the German manufacturer was enjoying cheaper
credit from the London Money Market than was
being given on overdraft by British bankers to British
manufacturers. That newspaper declared that out
of 250,000,000 of acceptance credits given by
London * it is safe to assert that 75 per cent, is granted
to foreigners,' and these foreigners moreover start
with a credit of three months : when the three months
have expired, they receive a renewal from another
acceptance house ; when the second three months
have expired, the credit is again renewed by still
another acceptance house and always at a lower
rate than bank overdraft rate. By this method the
foreign exporter is enabled to get a two years' credit
from London and to give a two years' credit to his
customers in other lands, and these facilities were
granted the foreign exporter by the London Money
3 Times, 14/11/31.
DISSIPATION OF BRITISH THRIFT 121
Market at a total interest figure of i per cent,
less than the bank overdraft rate of 5 per cent., the
minimum rate upon which the British exporters were
The Times goes on to give a list of German and other
continental exports which had been financed by the
London Money Market * during the past few months.'
The list includes :
' Coal ; Steel ; Machinery (including locomotives, cranes, and
ploughshares) ; Potash, Cement* Paper, Wood Pulp, Books, Hosiery,
Cutlery, Shoe Leather, Fire Bricks, Furs, Watches, Champagne, and
This, of course, was all in the ' ordinary way of
business. 5 And while it is true that much of our
world trade is three cornered (or more than three
cornered), silk from China to America being paid
for by exports of cotton from Lancashire to China,
and so on, the fact remains that British savings fre-
quently finance foreign manufacturers upon cheaper
terms than home manufacturers are financed. More-
over, there is an irresponsible selection of investment
and frequently the selection is in direct antagonism to
the national interest.
REMEDIAL MEASURES : A NATIONAL
' We do not hope to protect the born gull from the born
crook.' ' Britain's Industrial Future/ Liberal Tellow Book,
' I venture to challenge a denial from any responsible person
acquainted with the public borrowings of the years 1926-8, of
the assertion that, with the exception of loans recommended by
the League of Nations and the Central Banks, the bulk of the
foreign loans in these years to public authorities in debtor
countries would better not have been made. . . . The dead
weight of these wasteful loans was a major factor in causing the
financial crisis of the same kind as reparations and war debts.'
Recovery, Sir ARTHUR SALTER, K.C.B.
DURING the Great War the Government set
up what was called a Capital Issues Committee
for the purpose of scrutinizing all offers to borrow
money from the public upon long-term loan. This
Capital Issues Committee, after consideration of an
application for leave to make a public issue, made a
recommendation to the Treasury that the applicant
should be either granted or refused the right to make
a public appeal. And the Stock Exchange having
passed regulations to forbid dealings in stocks which
had failed to secure a licence from the Treasury, there
was, on the face of it, an effective national means of
preventing the flotation of both unnecessary and
A NATIONAL INVESTMENTS BOARD 123
In February 1919, this Capital Issues Committee was
' with a view to preserving capital during the reconstruction
period for essential undertakings in the United Kingdom and to
prevent any avoidable drain upon Foreign Exchanges by the
export of capital, except where it is shown to the satisfaction
of the Treasury that special circumstances exist.'
But in practice there was a heavy leakage, and
Capital issues, forbidden on the Stock Exchange,
were openly operated by outside brokers, to the manifest
disadvantage of members of the Stock Exchange.
And there were in addition allegations freely made
that issues officially prohibited in Britain were floated
on the Continent and their shares thereafter peddled
in this country. Instead, however, of seeking to plug
up the holes in the control system, the Government
weakly abandoned its supervision of the Home Capital
Market altogether and threw the Market open again
to every adventurer and speculator who came along
with a rubbishy flotation. The results in post-War
boom years we have already seen hundreds of
thousands of British investors picked bare by rogues
So far as long-term loans abroad are concerned, the
Treasury has, however, struggled to maintain a sort
of unofficial embargo exercised through the Governor
of the Bank of England. Applications submitted to the
Governor are shown to the Treasury, and if the
Treasury objects, the Bank of England refuses ' facili-
ties. 9 But this indirect, third-party, persuasion system
is insufficient and inadequate ; despite it, large volumes
of money have been invested abroad at times when the
investments were patently against the national interest.
As an example, in the first six months of the year 1931
when the Government was seriously concerned that
124 THE FINANCIERS AND THE NATION
the Exchanges were going against the country and
while the unemployment figures were clearly on the
increase, nearly two-thirds of the issues in the London
Capital Market were for overseas account 9,000,000
for foreign loans and 35,500,000 for Indian and
Colonial loans. During the previous year, 1930,
foreign loans on the London Capital Market were
35,500,000, Indian and Colonial loans 61,500,000,
and in addition 15,500,000 of overseas loans were
introduced on the Stock Exchange ; a grand total for
the year of i 12,500,000. Yet, according to the Board
of Trade, our balance on international account, i.e.
what sum we could afford to lend overseas in 1930,
was only 39,000,000 ; and in the first six months of
1931 it was nothing at all.
In an endeavour to grapple with some of the evils
of the great post-War money ramps, the Liberal
economists, notably Mr. J. M. Keynes, proposed the
formation of a National Investment Board. 1 This
Board, as the Liberals conceived it, was to be formed of
a committee of State nominees functioning under the
general direction and control of the Chancellor of the
Exchequer (in effect the Treasury), and its primary
duty was to be the collection into one single fund of all
the capital resources presently in the hands of various
Government Departments, and including the assets
of the Post Office Savings Bank and the National
Insurance Funds. The Board was also to issue State
bonds at lower interest rates to supplant the existing
higher interest-bearing national debt. It was to
finance all the Government Departments, allocating
to each (or rationing each with) such proportion of the
pool as the Government might decide. With whatever
new monies might be invested with it through the Post
1 See Britain 9 s Industrial Future (Bcnn), pp. 1 1 1 et seq.
A NATIONAL INVESTMENTS BOARD 125
Office Savings Bank and other channels, it was to
finance public utility corporations, agricultural credit
corporations, land banks, railroads, building societies,
co-operative societies, garden city companies, and the
like, upon c terms to be mutually agreed.'
But curiously enough there was no mention of the
financing of municipal loans, although after the Hatry
adventures in Municipal Finance, some at least of the
Local Authorities would seem to be as much in need
of an adequate supply of cheap credit, and as much
in need of protection from crookery in the money
market in the procuring of it, as are Public Utility
corporations, Building Societies, and the Garden City
Finally, as the Liberal economists visualized the
scheme, the National Investment Board was to have
power of selection and veto over the issue of public
loans for oversea countries.
While Mr. Keynes and his friends are entitled to
full credit for the work they did in formulating their
scheme for a more rational use of our national savings,
the functions they proposed for the National Investment
Board were so limited as to be open to many serious
practical and economic objections. To begin with,
they omitted to place in the forefront, the safeguarding
and protection of the small investor from the shark,
through a visaing of the new capital issues ; they
omitted to safeguard the municipalities (the biggest
public borrowers) : they unnecessarily interfered with
the work of the National Debt Commissioners ; and
their proposal to issue National Investment Bonds for
all sorts of enterprises not State owned, would speedily
land any Government which sought to operate the pro-
posal in a vast crop of credit trouble.
But the Liberal economists certainly popularized the
126 THE FINANCIERS AND THE NATION
idea of a reasoned and directed planning of the capital
resources of the nation, and even some of the leading
defenders of the present system of private enterprise
speculation with other people's money swung round to
support them. Thus Mr. Hartley Withers declared
that if the choice lay between the provision of capital
facilities for engineering and shipbuilding, and
' a company that wants to start an aeroplane service between
London and Brighton for the idle rich,'
he was all for engineering and shipbuilding. 1
And at a later date when the Labour Party had
adopted, or rather adapted, the scheme, we find Mr.
W. W. Paine, a director of Lloyds Bank, writing in the
Banker for November 1928 giving strong support for
some interference with what he describes as
' The waste of our national resources by the many wild-cat
schemes with which we are now familiar.'
Mr. Paine feels c some sympathy ' with the Labour
Party's demand for
* such changes in the banking and financial system as will
secure that the available supply of credit and savings shall be
used for enterprises of national advantage as distinct from those
which are useless or socially injurious.'
That demand is for a ' laudable object.' And he
sees going on around him * the promotion of such
undesirable ventures as greyhound racing associations
and similar enterprises which are a hindrance rather
than a help to the creation of national wealth.'
It happens * not infrequently,' he adds, that when
one bank in the public interest refuses * to allow its
name to be associated with an issue ' another bank
' is perfectly ready to take its place. Such is the stress
of competition ' !
1 War-Time Financial Problems, Hartley Withers, p. 103.
A NATIONAL INVESTMENTS BOARD 127
And so something must be done, he concludes, to
* some of the attractions by which unscrupulous promoters
inveigle the more ignorant sections of the community into
investments which are neither for their own nor the Nation's
But not, a National Investment Board. No, not that.
The Nation must not be permitted to Interfere so far
as to place ' any undue check upon enterprise or even
upon speculation.' The farthest Mr. Paine is prepared
to go is to set up a joint-committee of the banks and the
Stock Exchanges with power to placing an embargo
upon any undesirable issue of new capital. It would be
for the City and not for the Nation to decide. Mr. Paine
does not go far, but he moves.
In recent years the Labour Party has taken up the
running for a National Board of Investment, and there
have been an almost infinite variety of suggestions as
to the functions which ought to be entrusted to such a
Board. Possibly circumstances which we cannot yet
visualize will determine the powers which a Labour
Government would propose to give an Investment
Board. But it is already clear that whatever backing
a Board would receive from the general public would
arise largely from any powers it possessed to examine
prospectuses and withhold certificates from crooked
companies or from companies where the promotion
and goodwill expenses, being unduly heavy, would
be likely to sink the concern and lose the investor his
capital, or from a company whose objects would be
patently injurious to the National Interest.
If a licence or certificate were refused by the Board,
the promoters could be compelled to announce that
they had been refused, and investors who thereafter
128 THE FINANCIERS AND THE NATION
* plunged ' upon the stock would do so at their own
risk. Furthermore, the refusal of a certificate by the
National Investment Board would of itself be a serious
handicap to a company and cause it to pay more for its
But the Board would give no guarantee of soundness
of administration, or of certainty of dividend ; it would
accept no financial responsibility to the investor ; all
it would do, and all it ought to do, would be to warn
the investor betimes. Mr. E. H. Davenport, in the
New Statesman (10/10/31) tells us that in the promotion
of the average new company, some 10 per cent, of the
capital goes in the expenses of the issue and 50 per cent.,
not in providing new capital, but in making a present
to the promoters and vendors of cash for the purchase
of c existing rights/
A Board of National Investment would, however,
surely refuse licences on grounds other than suspected
fraudulency or overheavy gratuities to the vendors ;
for example, (a) it could refuse a licence on the ground
that there was already a sufficiency of capital in the
particular business or industry for which the new com-
pany was being promoted ; or, (b) that it was un-
desirable in the national interest to divert the available
public savings in a particular year to, say, a greyhound
racing corporation, while Oil from Coal was starved,
or to a Vickers Aeroplane loan for the Chinese War
Lords while so many of our water supply arrangements
were dangerously insufficient. Mr. E. H. Davenport
has described for us 1 the hurtful effect of .superfluous
flotations upon an industry. How
' the promotion, for example, of unnecessary silk companies
brought about such an excess capacity of plant that Gourtaulds
[ New Statesman, already cited.
A NATIONAL INVESTMENTS BOARD I2Q
had to embark upon a policy of cutting prices to an unre-
munerative level in order to force the redundant companies into
liquidation and their plant on to the scrap-heap. Much the
same occurred in the safety glass and gramophone industries.'
There can only be a certain proportion of savings
available annually for new public issues whether
foreign or domestic. Mr. Davenport declares that about
38 per cent, of the national savings are normally
ploughed back by employers and companies as un-
distributed profits in their own businesses ; then there
are building societies and mortgage institutions which
gather savings for special and specific purposes, e.g. for
the building of houses for their members. These two,
the reinvestment in the employers' business and the
saving for the specific purpose, absorb between them
about half of our annual national savings. The long-
term capital market takes the other half, and here there
is no control, no regulation, no sense of priority or
consideration of national advantage or usefulness.
Simply chaos and anarchy. As Mr. Davenport says :
* The company promoters and the issuing houses float just
as many issues as they think the investing public will stomach.'
Municipality may be bidding against municipality
and public utility against public utility, while some
crook operator or some foolish operator empties the
market and raises the rate of interest for the bona fide
But if the new capital issues in the home market are
more or less a chaotic scramble in a mist, with the
nation and the municipality and the investor all bad
losers, what of the new capital issues for overseas ?
Sir Arthur Salter from his unrivalled perch at the
Finance Department of the League of Nations has
witnessed the sheer folly and waste of the foreign loan
130 THE FINANCIERS AND THE NATION
as it is manipulated and juggled with to-day. He
assures us that, in two years, the bulk of all foreign
lending to public authorities in debtor countries (out-
side the loans recommended by the League of Nations
and the Central Banks) was completely and irretriev-
Sir Arthur Salter urges strongly that the control of
foreign lending to Government public authorities
should be an international control and ought to be
vested in a Joint Committee under the auspices of the
League of Nations. Certainly international control
would tend to prevent an international scramble
among borrowing nations for foreign capital, and
would possibly do much to limit wasteful expenditure
But before there can be any international decision,
clearly there must be some national estimate of what
amount a nation can afford to lend, either for home or
foreign issues or both, in any given period. It ought
to be the business of the National Investment Board
to make such an estimate, and having made it, to do
its utmost to see that the capital market monies
were not allocated recklessly as they are so allocated
to-day, a superfluity to one industry, a scarcity to
another, a glut in gramophones and nothing for piers
and harbours !
Every British Government in recent years has been
at its wits' end to know what to do with the derelict
industrial areas. There great public investments of
capital are already sunk in water and in drainage :
in houses, railways, gasworks, shops and amid a
miserable, cowed population with its hands in its
pockets and no prospect of anything but a continuance
of public assistance. There must surely be a con-
siderable number of instances where a National
A NATIONAL INVESTMENTS BOARD 131
Investment Board, perhaps by threatening to forbid
otherwise the issuance of licences to public companies
to raise capital, might usefully divert new industries
into the derelict areas, and by so doing save vast
populations from ruin, and many millions of usefully
invested money from complete loss.
If and when a National Investment Board had been
satisfied that the capital necessities of the home market
were adequately settled, there could then be allocations
recommended for the Dominions and the Colonies,
and when domestic and Dominion and Colonial needs
had been met, the Board, in association with the
Finance Department of the League of Nations, could
then allocate what savings remained to foreign
It is no use saying, as some muddle-throughers do, that
the nation would not be likely to succeed in any attempt
at the substitution of national planning for private
anarchy, and that anyhow capital will always flow
where it gets its best return. That is simply arrant
nonsense. Even to-day (1934) the Treasury restricts
public lending to foreign governments, and induces
the Bank of England to make things as difficult as
possible for British lenders desirous of placing a new
loan abroad, unless the Government is satisfied that
the loan is in the British National interest. In April
1933 the Government only gave approval to a loan
of 1,000,000 f r the construction of a bridge in Den-
mark upon condition that materials for the bridge were
purchased in this country a most reasonable and
sensible stipulation !
To the extent then that the Governor of the Bank
of England, on behalf of the Treasury, seeks to inter-
pose limitations and priorities upon foreign lending,
there is already interference with the c natural flow ' ;
132 THE FINANCIERS AND THE NATION
and to the extent that the Governor of the Bank of
England to-day fails to prevent undesirable capital
investment abroad, there is manifest need of a National
Board with more than * unofficial ' powers.
Nor can it be reasonably argued that capital invest-
ment will always go where it gets its best return. For
effective answer to such a contention listen to the
annual wail of the Council of Foreign Bondholders, or
read Sir Arthur Salter. And it is, I believe, a fact that
when the Credit Anstalt Bank of Austria collapsed in
1931 and a creditors' meeting was called in London,
every single bank in the City was represented ; so that
it would appear as if they had all been separately and
successfully tapped by the Viennese ; all had lent and
all had lost.
There are, however, some writers who believe that
a National Investment Board in order to be completely
successful must do more than (a) warn private investors
against booby traps, and (b) exercise control of capital
investments in the national interest. Such a Board,
these writers argue, would require to exercise in
addition at least indirect control over the long-term
investments of insurance companies and building
societies, and over the undistributed profits of industrial
There are still other writers who draw attention to
the necessity for national control of the system of
' private placings * whereby a financial house in London
may buy up a complete capital issue of some new
company, hawk it round the insurance companies,
banks, &c., and then, through the medium of a
friendly stockbroker, get the stock officially quoted and
dealt with on the Stock Exchange. There were
1 See, for example, The Control of Investment, by Colin Clark
A NATIONAL INVESTMENTS BOARD 133
15,500,000 of such 'private platings' in 1932. No
Investment Board could be completely successful in
safeguarding the investor and the national interest so
long as there remained such wide-open breaches in
the walls, and while so many opportunities were still
left for the financial raiders.
Nevertheless, assuming that our control of new
capital issues at home, and of long-term loans abroad
the latter through an international League of Nations
organization can be made effective, we shall surely
have gone a long, long, way to canalize our savings,
including the invested funds of insurance companies,
building societies, and commercial companies, into
channels of public usefulness ; and beyond a doubt
we shall have greatly limited the area of anarchy and
chaos in long-term financing. Whatever further steps
then require to be taken will be so much the clearer.
Moreover, as we shall see in succeeding chapters,
the National Investment Board does not stand by itself
as a complete policy. There are other proposals
municipal banking, a rapid development of the Post
Office Bank Service, a national ownership of the Bank
of England and these proposals would still further
limit the area in which High Finance disports itself.
And we may as well face the fact that we shall but multi-
ply, and that unnecessarily, our initial difficulties if we
attempt to throw in as extra campaign luggage, a
compulsitor upon public companies to invest their re-
serves in such a manner as they, the companies, do not
approve and will strenuously and desperately resist.
The National Investment Board is designed to lessen
the opportunities for robbing and plundering investors.
It is designed to secure priority in finance for our
essential industries. It is designed to eliminate crises
and panics ; at any rate, it is designed to eliminate
134 THE FINANCIERS AND THE NATION
such proportion of these crises and panics as can be
traced to the flooding of our national savings upon
concerns and enterprises where further capital ex-
pansion is clearly unnecessary, or where it is unde-
sirable in the British National Interest. And such a
Board we might get in the present state of public
opinion. It is the first and most immediately necessary
step in the march of mankind against anarchy. Let us
take that step.
REMEDIAL MEASURES : A STATE-OWNED BANK
OF GREAT BRITAIN
' The Weekly Return is the only statement of accounts which
the Bank of England publishes . . . this is really very remarkable.
There is no balance-sheet, no revenue account, no Annual Report
there is nothing whatever.' Sir Joseph Burn, Stock Exchange
Investments : Lectures to Institute of Actuaries (1908), p. 25.
* The dogs bark : but the caravan passes on.' Rt. Hon.
MONTAGU NORMAN, Governor of the Bank of England (4/10/33).
' When a bank lends, it creates credit out of nothing.' Trade
Depression, p. 4, R. G. Hawtrey (Assistant Secretary to the
AT the heart of the great skin game sits the Bank of
England. Here is the very citadel of the Money
Power. An anachronism in the twentieth century
surely a private profit company but not obliged like
other companies to file the names of its shareholders
and their holdings with the Registrar of Public Com-
panies : a private company whose ' Board of Directors
is self-electing/ and whose older members form them-
selves into * a standing committee of indefinite powers *
against their younger colleagues : l a private company
which possesses, apart from certain limited note issues
by Scottish and Irish banks, a complete monopoly
of the right to issue money notes in Great Britain : a
private company which has the power to lend, and has
in fact so lent, British credits to foreign countries
credits not infrequently used for the creation of rival
1 English Public Finance, Harvey E. Fisk.
136 THE FINANCIERS AND THE NATION
industrial enterprises to British enterprises : a private
company whose directors, meeting in secret, can at its
sweet will lower or raise the rate of interest for the loan
of money to British industries : a private company of
money lenders and money dealers placed in charge of
the administration of British war loans, and indeed of
every form of British State debt : a private company
about which Members of Parliament are forbidden to
put questions on the order paper of the House of
Commons : a private company with such wide powers
over the lives and futures of men and women as
monarchs neither possess nor seek : a private company
which holds the cash reserves, 85 per cent, to 90 per
cent, of their total deposit liabilities, of the commercial
banks, and, holding these reserves, is enabled to fix
the volume of credit which, from time to time, is made
available for industry. The Bank of England is there-
fore a private company which has the supreme power
of declaring whether prices of goods will be deflated,
wages lowered, and unemployment intensified, or
alternatively whether prices will be inflated and every
one with a fixed income suddenly find his income
diminished in value through a price rise ; a private
company which, by its operations in bills or securities,
buying or selling stocks in the open market, increases
or decreases the market supplies of cash, * thus per-
mitting an expansion or compelling a curtailment of
the volume of credit ' ; l a private company with a
capital of 14,500,000 upon which for each of the
sixteen years prior to August 1921 a dividend of 10
per cent, was paid ; in which for the succeeding year
(1921-2) a dividend of 1 1 1 per cent, was paid : and in
which for the period 1922 to 1932 there was an annual
dividend of no less than 12 per cent. One might add,
1 Central Banks, Kisch and Elkin, p. 107.
A STATE-OWNED BANK 137
as an additional point of interest, that the Bank of
England is a private company whose governor when
he goes on foreign travel, does so incognito, under the
not wholly inappropriate cognomen of ' Professor
It is not suggested that the Bank of England is either
inefficient or corrupt. On the contrary, by common
consent, it is one of the most efficiently conducted
business machines in the world ; its Court of Directors,
as it is called, has had the wit to co-opt men like Sir
Basil Blackett and Sir Josiah Stamp ; its clerical staff
is employed upon a Civil Service basis ; and there has
never been a whisper certainly not the production of
any proof that the individual merchant bankers who
dominate the Board have made illicit personal use of
their prior knowledge of Government projects and
But it is nevertheless impossible in the twentieth
century for a democracy to permit financial domination
by a handful of City financiers ; and it is intolerable
that these financiers should be left in a position to
thwart and obstruct the government of the day when-
ever that government is bent upon removing any
privilege or injustice in the State. Mr. Gladstone in
his day suffered much at the hands of the Bank of
England. In his own words :
' From the time I took office as Chancellor of the Exchequer,
I began to learn that the State held in the face of the Bank and
the City an essentially false position as to finance. . . . The
hinge of the whole situation was this : the Government itself
was not to be a substantive power in matters of finance, but
was to leave the money power supreme and unquestioned. In
the conditions of that situation I was reluctant to acquiesce,
and I began to fight against it by financial self-assertion from
the first, though it was only by the establishment of the Post
Office Savings Banks and their great progressive development
138 THE FINANCIERS AND THE NATION
that the finance minister has been provided with an instru-
ment sufficiently powerful to make him independent of the
Bank and the City power when he has occasion for sums in
seven figures. I was tenaciously opposed by the Governor and
the Deputy Governor of the Bank, who had seats in Parliament,
and I had the Gity for an antagonist on almost every occasion.' l
Mr. Lloyd George, too, gives his testimony :
' These men (the City of London financiers) . . . establish
a veto upon every proposal which is made for national develop-
ment. We got rid of the veto of the House of Lords. Take
care that you do not establish a more sordid one. If you go
to the City of London, what is their only remedy for depression ?
Their only remedy is by placing artificial barriers to prevent
Plenty from reaching Want.' 2
And in a press interview he added :
' The City is the stronghold of reaction. All the time when
I was Chancellor of the Exchequer up to 1914, I had to fight
the City. . . . Talk about public control. It was that that
saved the City in 1914. No Government will ever get a big
programme through unless it is prepared to face up to the
reactionary money interests in the City of London.' 3
The main defence we have ever seen advanced for
this control of our national savings and credit by a
small secret private company of financiers is that the
nation and its elected representatives being too unfit,
too unintelligent, and too corrupt to own and control
their own Central Bank, the small company aforesaid
patriotically step forward and (for a modest 12 per
cent, profit plus salaries) take control of our debts and
credits from us.
But in most other industrial countries the State con-
trols its own financial business without provoking the
disasters which the Money Power here declares would
1 Morley's Life of Gladstone, Appendix, vol i. pp. 650-1.
2 Speech, House of Commons, 12/2/31.
3 Forward, 7/6/31.
A STATE-OWNED BANK 139
assuredly arise from State ownership of the Bank of
The Bank might well, by the way, be re-christened
the Bank of Britain when the old monopolists are given
their pension books and told to go home.
The Central Bank, the Riksbank, in Sweden, is
state-owned. So is the Bank of Russia state-owned,
as it was state-owned under the Tsars for a century
or more. So are the Central Banks of Finland, Latvia,
and Czecho-Slovakia. So is the National Bank of
Bulgaria, the Banco De La Nacion Argentina, the
Commonwealth Bank of Australia, the Bank of
Uruguay, and the Bank of North Borneo.
In Turkey, Estonia, Columbia, Mexico, and Bogota,
the State is part proprietor of the Central Bank. The
Department of Overseas Trade Report for 1932 de-
clares that the Turkish Government holds all the * A '
shares in the new Central Bank. This Bank, which
began operations on October 3, 1931, showed a profit
on its first year's working. 1
In Norway, Spain, and Chili, the Government
nominates three directors. In Switzerland a majority
of the members in the Central Bank directorate are
nominated by the Federal Council of State. New
Zealand has just decided to acquire similar powers of
In Denmark, Holland, Poland, Greece, Hungary,
Austria, Japan, and Rumania, the Government appoints
a Commissioner with supervisory powers over the
Central Bank. In the United States all net profits,
1 The Observer's correspondent at Istanbul reports (3/12/33) that
* The State-owned Sumer Bank has Ismet Pasha's favour, and
aims at bringing the widest possible proportion of National
activities within the scope of immediate State control.'
2 Economist, 30/12/33.
140 THE FINANCIERS AND THE NATION
after a dividend of 6 per cent, has been paid, go to the
United States Treasury.
Apparently only in Great Britain and Germany
among the great nations are the Central Banks com-
pletely private enterprise concerns without even State
nominees on the directorate and without statutory
limitation of profits ; in the case of Germany this
divorce from the State is clearly due to pressure from
the greater Powers and the International banking
Russia is rather in a category by herself. The State
Bank of the U.S.S.R. has functioned since 1921 ; and
in 1922 it received the right to issue chervontzi (gold-
backed bank notes) . Its only capital to start with was
a depreciated paper currency ; but by March i, 1932,
it had accumulated a reserve of 372,000,000 dollars,
backed by gold, platinum, and stable foreign currency ;
and in addition it had a capital of 296,000,000 dollars.
The system in Russia differs from the system elsewhere,
because practically the entire trade of the country is
in the hands of, or is controlled by, the State, and since
the Credit Reform Act of 1930 in Russia, the State
Bank has provided credits not to the selling organiza-
tions, but to the buying organizations in the country.
If not consumers' credit exactly, it is credit given to
organizations which purchase rather than organiza-
tions which produce. Until recently there was a small
private industry for profit still operating in Russia,
and that industry was catered for by Mutual Credit
Societies or banks. On January i, 1929, there were
223 of these Societies in existence, working with assets
of 34,000,000 roubles. 1 But the private trade and
1 Economic Review of the Soviet Union, 15/10/29, 15/11/29, and
15/8/32. Bank for Russian Trade Review, January 1928 and June
1930, and British Russian Gazette, October 1931.
A STATE-OWNED BANK 141
the private banking that financed it is now no longer
In Sweden and in the Argentine to take only two
tests, one in Europe and one in America there is no
evidence whatever that State ownership of the Central
Bank has been other than highly beneficial to the
The Sveriges Riksbank, or Bank of Sweden, is com-
pletely state-owned. 1 Ever since 1807 the Government
has appointed the chairman of the Bank, but the other
six directors are appointed by Parliament. The Bank
has sole control of currency, and our Department of
Overseas Trade reports annual profits (on a paid-up
capital of 50,000,000 kronen) which averaged annually
in the years 1925-9, over 18,000,000 kronen : all
these profits being used in the State Budget for relief
of taxation. Every political party in Sweden accepts
the State Bank without question, and would as soon
think of handing it over to a private profit group as it
would think of handing over the Swedish navy to a
The State Bank of the Argentine Republic has been
completely in Government ownership since 1904. Its
annual profits are equally divided into new Bank
Capital and the Reserve Fund. But profits are a
secondary consideration to the promotion of trade.
The Times Trade Supplement for June 18, 1927,
declared that not only is the Banco de la Nacion in
the Argentine wholly state-owned but the Government
of the Province of Buenos Aires holds half the capital
in the Banco de la Provincia de Buenos Aires, and
these two banks between them carry 55 per cent, of
the total deposits of the Republic and transact 50 per
cent, of the loan and discount business in face of the
1 Established in 1668, Banker's Almanac, 1933 4.
142 THE FINANCIERS AND THE NATION
most strenuous competition from European and
American banking companies. The Banco de la
Nacion with its 230 branches and agencies has as its
established policy the assistance of trade and com-
merce : it operated, as The Times noted, * on terms
which do not profess to be chiefly with a view to profit-
making.' Yet it made profits. And the Banco de la
Provincia in the year 1926 made net profits of 6 J million
dollars. The Banco de la Nacion was run to aid the
nation and its citizens ' in case of need.'
In 1928 The Times Supplement was even more flatter-
ing in its comments. The Argentine's banking position
now * depends upon the strength and good guidance
of the Banco de la Nacion,' * and the Bank is ' un-
trammelled by the necessity of earning dividends.'
Moreover, it has * fulfilled its delicate functions with
wisdom and tact,' and was ' well managed ' by a
directorate of * safe and responsible men ' who were
safe and responsible even although chosen by Govern-
ment. Our Department of Overseas Trade 2 comments
for the year 1932 that conditions in the Argentine had
been difficult : some of the company banks had sur-
vived with difficulty, but the Bank of the Nation took
most of the strain and * now does nearly as much
business as all the others together.' The Bankers 9
Magazine (September 1928) admits that the Argentine
State Bank has been c operated with a view to rendering
the greatest assistance to the trading community.'
The prophecies of flights from the pound and the
prophecies of political misuse of the Central Bank under
nationalization which the Money Power issues periodi-
cally to the Press are thus proven, where the allegations
can be tested, to be absurd and erroneous. They are
1 Times Trade Supplement, June 30, 1928, p. ai.
2 Report, 1933, p. 35.
A STATE-OWNED BANK 143
worse : they are impudent, for they assume that men
who act for the State will act corruptly or foolishly,
whereas men who work the lining of their own pockets
will not ; they assume that the British people is so
hopelessly stupid, gullible, and corruptible that it must
not be permitted to nominate the controllers of its
national credit or to control the management of its
own debt-books, but must needs be elbowed aside by
a small sub-committee of bankers and their nominees
who graciously declare for themselves and their fellow-
shareholders a dividend of 12 per cent, per annum in
addition to their supervisory salaries.
One other argument sometimes used against state
ownership of the Central Bank in Britain, that needy
governments might repair to a state-owned Central
Bank for easy money by inflation, 1 is easily countered.
In the first place, needy governments desirous of
inflation will impose their will upon Central Banks
of issue anyhow and whether their banks are publicly
or privately owned ; in the second place, the State
Treasury to-day has the statutory right under the
Currency Bank Notes Act of 1928 of authorizing an
increase or a reduction in the fiduciary note issue
that is, the issue not backed by bullion or specie and
can authorize the change for two years without con-
sulting Parliament ; and in the third place, it would
be an easy matter to prescribe regulations for publicity
in all Government borrowings from the bank which
publicity would enable Parliament to keep the Treasury
advances and balances under close review.
But what is the State to do with control of the Bank
of England when it secures that control ? Is the present
credit policy to continue unchallenged and the only ob-
servable gains be some saving in dividends and a more
1 See Central Banks, Kisch and Elkin.
144 THE FINANCIERS AND THE NATION
efficient regulation of the speculators and financial adven-
turers through the Bank of England's grip upon the over-
drafts and loan investments of the Joint Stock Banks,
and through the Bank's grip upon the operations of
the Discount Houses ? These are indeed in themselves
great gains and may carry us far to a rational national
use of our savings. But, even so, are they enough ?
Must we not also arrange for a dispassionate and an
exhaustive examination of the results of some previous
issues of public credit for public purposes ? And, at the
same time, must we not consider fully the various
proposals presently being canvassed up and down the
world for a better use of the credits which we can now
secure upon our increased capacities to produce wealth?
(A) THE DOUGLAS SCHEME
The Scheme for supplying social credit to consumers,
propounded with gathering enthusiasm by the fol-
lowers of Major C. H. Douglas, ought to be impartially
Unfortunately Major Douglas has seen fit to re-
commend his scheme to the opponents of the Labour
Party as a barrier to the Labour Party's Socialist
programme, and naturally, therefore, his scheme
stands heavily prejudiced in the eyes of vast sections
of the working classes. In the Nineteenth Century
Magazine, for example, March 1925, Major Douglas
declares that a grasp of his proposition * is the most
formidable menace to orthodox Socialism with which
that doctrine can be confronted.' But it would not
appear as if Major Douglas has attracted thereby any
countervailing support from the bankers and their
political friends. Indeed, politically he seems rather
to have contrived to make the worst of both worlds.
THE DOUGLAS SCHEME 145
His proposal if one may attempt a brief bald
summary of it is that the steadily increasing produc-
tivity of the nation should reach the citizens in the
form of a direct dividend from the State. Having
received their social credit dividend tickets (there is
to be a close actuarial estimate of the amount of the
increased production of goods during the year) the
consumers take their tickets to the shops ; the shop-
keepers then reduce their prices of the goods sold by
the amount of the social credit tickets which the
customers hand over to them ; and these social credit
tickets will in due course reach the Bank of England
where they will be cancelled simply written off
at the order of the State.
The theory is that this increase in consuming power
will not involve inflation of the price of commodities,
because there has been in fact a reduction in price at
the point when the shopkeeper sold the goods, and this
reduction is passed up through wholesalers and manu-
facturers until it reaches the Bank of England.
The shopkeeper reduces his payment to his whole-
saler by the amount of his social credit tickets : the
wholesaler similarly reduces his payment to the manu-
facturer by the amount of his social credit tickets :
the manufacturer gets credit at his bank for his tickets :
and the bank gets credit at the Bank of England for the
tickets it hands over. What has occurred is that an
increased purchasing power in a given period has been
passed on to the consumer, and through the consumer's
increased demand for goods has stimulated employ-
ment, instead of, as is the case to-day, an increased
productivity in boots, cheese, umbrellas, or anything
else, resulting in a glutted market and unemployment.
The Douglas proposals have attracted considerable
support in Canada, Australia, and New Zealand, and
146 THE FINANCIERS AND THE NATION
a recent (1934) tour in these Dominions undertaken
by Major Douglas was conducted almost as if it were
a religious ' revival.' He received official civic re-
ceptions and had a tremendous press and wireless
publicity. No doubt the vast crowds who turned out
to cheer him and welcome him as the greatest economic
discoverer of the century, had not the faintest under-
standing of his A + B theorem or of his argument about
the flaw in the present price system. But these, after
all, are matters upon which the crowds could hardly
be expected to construct a reasoned opinion. What is
impressing hundreds of thousands of people in the
world is the Douglas proposal for a national dividend
whereby the increased productivity of man and
machine can be readily distributed to consumers,
and not, as to-day, permitted (first) to glut markets,
and (second, and because of the glutted market) to
limit production and throw the producers unemployed
and among the non- (or limited) consumers.
We are all familiar with the idea of a dividend by the
Co-operative Societies. Every increase in efficiency
presumably adds to that dividend. Why cannot every
increase in efficient production similarly add to a
national dividend and be distributed to the citizen
consumers ? And if the claims of Major Douglas to
have worked out a technique whereby such a distribu-
tion of a national dividend can be made without an
inflation of the price level are justified, then he has
undoubtedly performed a service to humanity which
entitles him to rank with Watt and Lister. True, the
Douglas proposals do nothing to socialize ownership
of the land and industrial capital although they
involve the national ownership of the Bank of England
and it is equally true that they do nothing to plan
and organize national effort for national services, but
THE LIVERPOOL NOTE ISSUE 147
if they provide, as their author claims they do, a work-
able method of distributing the produce of a machine
age, then no government, whether Capitalist or Socialist,
in the twentieth century can afford to ignore them. 1
(B) THE LIVERPOOL NOTE ISSUE
In the black year of 1 793, the City Council of Liver-
pool had to face a serious situation arising out of a
complete collapse in the local private banking system.
Employment was suspended, and shopkeepers had
to shut their shops.
On March 20, 1793, the Mayor reported that
fifty-eight leading merchants had begged the Council
to procure a loan from the Bank of England to enable
the City to tide over the distress which had engulfed
The Council agreed, and asked the Bank of England
for 1,000,000 for fifteen months.
This request was refused by the Bank, but the
Council's deputation to London induced Parliament
to give them instead a special Act entitled
' An Act to enable the Common Council of the Town
of Liverpool in the County of Lancaster on behalf of
and on account of the Corporation of the said Town
to issue negotiable notes for a limited time and to a
limited amount. 9
1 For Douglas Scheme proposals, see Major Douglas's own
writings, e.g. The New and the Old Economics ; Economic Democracy
and Credit Power and Democracy (Palmer) ; also This Age of Plenty ,
by C. Marshall Hattersley (Pitman) ; and, from a Socialist point
of view. Money and Wealth, by Louis Anderson Fenn (Williams &
Norgate). Mr. Fenn, however, draws attention to the fact that
consumer's credits alone will not do anything to promote a better
planning or reorganization of industry. For Socialist criticism
of Douglas, see Foundations for the World's New Age of Plenty^ by
Fred Henderson (Gollancz).
148 THE FINANCIERS AND THE NATION
By this Act Liverpool could issue, c for value received
or other due security,' notes of 100 and 50, to run
for two years from May 25, 1793.
These notes carried a rate of interest of 4, us. 3d.
per annum. In addition, there were issues of 5 and
10 notes to run for three years. These notes of smaller
denomination bore no interest. The total issues were
restricted to 300,000.
There was a daily meeting of the Committee in
charge of the issuing department, and we are told that
the notes c seem to have been freely accepted in
ordinary transactions.' l
On February 28, 1795, the amount of notes on issue
reached the figure of 140,390.
Traders got advances on cotton, flax, silk, tallow,
wine, timber, mahogany, pigments, iron, potash,
coffee, hops, lead, whale oil, tar, copal, bills of ex-
change, business premises, ships on the stocks, and the
security of the Alt rates, but a request for a loan by
Mr. David Paton and others, on the security of the
Scots Kirk, was declined.
At the end of the period of the Act
* It was determined to apply for an extension ; but the
request though forwarded was not hotly pressed, and its
refusal neither excited resentment nor led to any serious con-
As a result of the municipal note issue, however,
the panic was stayed, failures were prevented, and the
whole sum, with interest, was within three years
recovered without loss. 2
1 Economic Journal, 1896, pp. 484-7, article by E. C. K. Conner.
* See also references to subject in English Local Government
Vol. ' The Manor and the Borough,' Sidney and Beatrice Webb,
p. 485. There the incident is described as * the boldest financial
step recorded in the annals of English Local Government.'
THE GUERNSEY EXPERIMENT 149
(a) THE GUERNSEY EXPERIMENT
A century ago the propaganda speeches of the
Radicals and the Co-operators were interlarded with
references to experiments in the Channel Islands,
where at Guernsey, a public market, schools, and a
college had been built, a church repaired, and roads
and coast preservation works made, all without any
charge for loan interest. The most elaborate accounts
of the Guernsey experiment are to be found in a
London School of Economics Study, Communal Cur-
rency, l and in a survey of the accounts published by the
Jersey Evening Post on February 9, 1933.
In 1815 the States (that is the local Parliament) of
the Channel Islands were recommended by their
Finance Committee to acquire property and build
a public market, repair a church, and make roads, and
to finance these schemes by the issue of local notes to
the value of 6000.
The notes were to be ' printed on the best paper . . .
and from a plate engraved by the best artist, each note
numbered and bearing the signatures of three men
well known on the island.'
On October 17, 1816, there was a first issue of these
Guernsey notes to the amount of 4000, ' for coast
preservation works, Torteval Church, and Jerbourg
Monument.' The notes were to be redeemed and
destroyed, so many every Saturday, and were to be
completely taken off the market by April 15, 1818.
In May 1820 the famous markets scheme was begun,
4500 of notes being issued for the purpose, e redeem-
1 J. Theodore Harris (King 6? Son). See also Howe's The
Evolution of Banking (Kerr, Chicago), where photographs of the
Guernsey notes and the public works are given.
150 THE FINANCIERS AND THE NATION
able in ten years out of import duties and the revenue
from butchers' shops.' By September 1821 the total
interest-free notes in circulation did not exceed
There is a legend that when the new markets were
opened, the Governor, Daniel de Lisle Brock, cancelled,
by publicly burning them, a number of these notes.
The local press of the period, however, has no reference
to this alleged ritual, and the notes were probably
taken off the market in a much less dramatic way, and
quietly cancelled, as under the previous arrangement,
from the import duties on wines and spirits, and from
the taxes on the butchers' shops.
So successful was the note issue scheme that, in
March 1826, the Finance Committee of the States
(Parliament) was authorized to issue additional notes
to the total of 20,000 for the purpose of erecting
Elizabeth College and of building certain parochial
The Jersey Evening Post says that by 1837 over 55,000
of interest-free notes were still in circulation
* and in the Billets d'Etat frequent references are made by
eminent men of those times that had it not been for the issue of
States' notes important public works, such as roads and build-
ings, could not have been carried out, and this was done
without interest-costs to the Island, the result being that the
influx of visitors was increased, commerce was stimulated, and
the property of the Island vastly improved.'
For the first ten years from 1816 the note issue
scheme worked splendidly ; and there was no
opposition. But after 1826 the voice of the Money
Usurer was heard in the land.
First, it was said that no capital works should be
financed by State note issue, unless the consent of the
King in Council were first obtained.
THE GUERNSEY EXPERIMENT 151
Daniel de Lisle Brock, the Governor, spiritedly
opposed this proposal, and it was defeated.
Three years later the bankers appealed to the Privy
Council in London, and that body asked De Lisle
Brock for an explanation. The reply to the Privy
Council was published in the Billet for December 23,
1829, and is described by the Jersey Evening Post as a
' masterpiece, 5 although the paper does not give the
The bankers' next step was to issue big quantities
of their own notes and flood the island with paper
money, hoping to deluge and discredit the State
One would have imagined that public opinion would
have backed the anti-usury Governor and that he
would have stopped the private bank issues altogether,
under penalty of imprisonment to the bankers in the
plot ; but apparently the financiers were strong
enough in the year 1836 to secure an agreement
whereby it was stipulated that the State notes in circu-
lation were not in future years to exceed 40,000.
And right down to our own time in 1914 the public
issue remained at that figure. During the Great War,
however, the need for money was so great that an
Ordinance was passed allowing the issue to be in-
creased, and to-day it fluctuates between 150,000
and 200,000, * and is undoubtedly/ says the Jersey
Post, ' a source of great benefit to the Island.'
And note this :
' A loan of 175,000 at 5 per cent., redeemable in thirty
years, would cost the States annually n>383 in interest and
redemption. Our note issue for approximately the same sum
costs us 450 per annum ; so that it is up to every patriotic
Gucrnseyman to use State notes in his local transactions, and
by so doing, keep down taxation, which bears on each of us.'
152 THE FINANCIERS AND THE NATION
But it is not the amount of the saving to the Guernsey
people that is the most important and most interesting
feature of this amazing experiment : it is the complete
absence of any allegation that the note issue inflation
for inflation it was had raised prices of goods to the
Islanders. Doubtless such an allegation, were it now
to be made, would be incapable either of proof or of
disproof ; but it is an indisputable fact that the Guern-
sey tradition is altogether favourable to the public
note issue and is wholly against the private bankers
and money-lenders who sought to frustrate the ex-
(D) PROFESSOR SODDY'S PROPOSAL
Professor Frederick Soddy, who has already won
his laurels in Chemistry, has contributed greatly to
modern thought upon the importance of national
control of the issuance of money. 1 He declares that he
was first attracted to the study of the problem of money
by the writings of Mr. Arthur Kitson, who for a genera-
tion was practically alone in stressing the importance
of the subject. Professor Soddy's main contention
is that the State, and the State alone, should issue new
money, and that the banks ought to be permitted to
lend 1 for 1, and no more than i for i,
against deposits and securities actually in their
When the privilege of creating money for their own
profit is abstracted from the private banks and becomes
the prerogative of the State, the banks will continue
1 See Money versus Man ; The Inversion of Science ; Wealth, Virtual
Wealth^ and Debt; The Wrecking of a Scientific Age, &c. For a
criticism of part of Soddy's theory, his theory about fictitious
loans, see Cole's Money, p. 375 et seq.
PROFESSOR SODDY S PROPOSAL 153
giving other services to their clients, such as keeping
their accounts, providing safe deposit facilities, &c.,
and will charge their clients a fee for so doing.
The present writer finds Professor Soddy one of the
very few authorities on Finance who has any concep-
tion of the importance of the National Debt in our
financial economy, or has any suggestion to make of
a rational and feasible method by which that debt
may be substantially reduced. Most other writers
simply dodge the subject. But Professor Soddy has
clearly shown that something in the neighbourhood of
2,000,000,000 of our National Debt was originally
fiction mere book-entry work. It is true that the
present holders of scrip for these millions may have
given up securities or property for their debt certifi-
cates, and it will therefore be necessary for the State,
somehow or other, and sometime sooner than later,
to purchase 2,000,000,000 of debt scrip from its
present holders, as and when the debt scrip comes
periodically on to the market for sale.
The State, says Professor Soddy, could purchase
the debt with new money which the State itself and
not the private banks would create for the purpose.
The State would then immediately cancel the scrip
it had purchased. And 2,000,000,000 of interest-
bearing debt would thereby be supplanted by
2,000,000,000 of non- interest -bearing debt (i.e.
the new money), and the nation, in consequence,
would be relieved of an annual burden of 100,000,000
in interest. Since these estimates were made, the State
has secured a conversion of a large part of the National
Debt to lower rates of interest. The possible savings
resultant from an application of Professor Soddy's
scheme would therefore require amendment.
154 THE FINANCIERS AND THE NATION
(E) THE GESELL THEORY
The writings of the late Silvio Gesell are much n/ore
widely known on the continent of Europe and in the
United States of America than they are in Great
Britain. Mr. Gesell, a German who made a fortune in
South America, returned to Switzerland and spent the
years of his retirement until his death in 1930 in pro-
pagating a theory of ' interest-free ' money. Under his
scheme, a public body which desired to undertake new
public works, instead of borrowing money at interest
for the purpose, would issue currency notes to the value
of the new works. The currency notes are to decrease
in value one-tenth of i per cent, per week, or 5 per
cent, per annum. If a trader gets payment in a Gesell
note and desires his note to retain its value, he must
affix a stamp according to the length of time he has
kept the note in his possession. As he does not desire
to pay for and affix stamps, he does not hoard the
money : he passes the note on quickly : he pays his
bills or his taxes with it. The result is that the velocity
of the Gesell notes is much greater than the velocity
of non-depreciating money ; the Gesell notes, there-
fore, operate more exchanges of goods : they stimulate
both consumption and employment, and they preserve
the community from great burdens of debt.
It will be observed that there is some analogy
between the Gesell depreciating money and our own
Post Office practice of charging a commission equiva-
lent to the original commission upon Postal Orders
which are not cashed within three months of the date
Experiments in the Gesell system have taken place
it is alleged with most markedly successful results
THE GESELL THEORY 155
at Schwanenkirchen in Bavaria, at Steyr, and at Worgl
in the Austrian Tyrol, where the National Bank of
Austria has interfered and compelled a State prosecu-
tioft of the Mayor of Worgl for an infringement of its
note-issuing monopoly. 1 Professor Irving Fisher, of
the Chair of Economics at Yale University in America,
has written and broadcasted very favourable descrip-
tive accounts of the Worgl experiment, and it is
reported that as a result of his expositions over twenty
towns in America have adopted Gesell methods and
are now operating with interest-free money.
1 See New Statesman, 2/12/33 ; Mr. Gaitskell in Cole's What
Everybody Wants to Know about Money (Gollancz) ; Free Money, by
J. Henry Buchi (Search Publishing Co.) ; and Professor Irving
Fisher's Booms and Depressions (Allen & Unwin Ltd.), p. 226.
REMEDIAL MEASURES : THE POST OFFICE
* ... a very high degree of enterprise in operation. Indeed,
we do not think it is going too far to say that the Savings Bank
is ahead of any private concern in the adoption and development
of office mechanization and labour-saving devices.' Report of
Lord Bridgeman and his Colleagues Post Office Enquiry, Cmd. 4149
AT the end of the year 1932 there were no fewer
than 10,000,000 active deposit accounts in the
Post Office Savings Bank and a sum of 305,712,000
was due to the depositors. By October 1933 the
estimated balance due the depositors, after allowing
for accrued interest, was almost 325,000,000.
Measured by the number of his customers the Post-
master-General of Great Britain is the largest banking
operator in the world, and prior to the trade slump,
which drove large sums of money out of industrial
use and into the keeping of the Joint Stock Banks, he
was also the world's largest banking operator when
measured by the amount of his deposits. In addition
to the Post Office Bank, and also under Government
supervision and working without profit for share-
holders, there were in November 1932 the Trustee
Savings Banks with almost 2^ million active accounts
carrying deposits of over 202,000, ooo. 1
1 The funds of both Post Office and Trustee Banks, after pro-
viding for current requirements, are deposited with the National
Debt Commissioners. The State guarantees the depositor in the
THE POST OFFICE BANK 157
The Post Office Bank has always, from Mr. Glad-
stone's time until now, been hampered and crabbed
bv the open or covert opposition of the Joint Stock
Bai.sks, whose proprietors have succeeded in imposing
many irritating prohibitions and restrictions upon its
development. Down to the period of the war no
individual depositor could deposit more than 50 in
any one year in the Post Office Bank, nor could he
have a total credit balance of more than 200 ; he
could not draw a cheque upon his account : he could
not pay in Scots bank notes or cheques at a Post Office
in England : he could not pay in a coupon or dividend
warrant, nor a cheque upon a foreign bank, nor a bill
of exchange even if it were cashable on demand : he
could not get a Traveller's Letter of Credit upon his
own account. No interest was given him upon sums
under i, nor for any sum for the broken part of a
calendar month. 1
Largely as a result of continuous Fabian Society pro-
paganda several of the more obviously foolish of these
restrictions have now been modified, and during the
year 1933 a system of Travellers' Warrants and a
system of Cruising Credits has been inaugurated.
Travellers' Warrants for 3 each are payable at any
Post Office without surrender of the Bank Book ;
and Cruising Credits now enable a traveller on board
a British ship to obtain Post Office Bank money
through the purser. But there yet remains a series
of senseless prohibitions and limitations, all of them
former and the bank in the latter case. The depositor in the
Trustee Bank is, however, further safeguarded by a State Inspec-
tion Committee limiting expenses, etc., under the Savings Bank
Act of 1891.
1 How to Pay for the War, Fabian Research Dept. (Allen &
158 THE FINANCIERS AND THE NATION
carefully designed to prevent the development and
full use of the State Bank in the national interest. For
example, in March 1934 a depositor was still forbidde\
to deposit more than 500 in any one year, the re-
striction being drafted with the clear object of drawing
the larger depositors away to the private profit banks.
Again, a depositor is not permitted to withdraw more
than 3 at sight, even from the Post Office branch
where he has lodged his money ; if he desires to with-
draw more than 3 his pass-book must first be sent
to London for the necessary authority. He is forbidden
to pay money in to any other depositor's account unless
at the same time he submits the pass-book of the
other depositor. He may indeed apply for a crossed
warrant upon his account and hand the warrant to
his grocer or his tailor, but his grocer or his tailor
cannot cash that crossed warrant at a Post Office :
the warrant may only be paid into a Savings Bank
account if the grocer or the tailor has one ; if not,
he must get a private banker to cash the warrant
But by far the most irritating restriction of all is the
absence of any cheque system as between the 10,000,000
accounts in the Bank.
Here is a Bank in existence with 15,000 branches
and buildings, safes, and clerks all the machinery of
banking. The security is absolute : all the funds
invested with the Government, and the Government
that is, the Nation guarantees repayment of the
deposits on demand. Were a cheque system permitted
as between the depositors, that is to say, if Depositor A
might pay a debt to Depositor B by cheque, then when
B paid in the cheque he had received from A all that
would be involved would be a book-keeping trans-
action in the Post Office, a mere diminution of A*s
THE POST OFFICE BANK 159
assets, and a corresponding increase in B's assets, by
the amount of the cheque.
If the recipient B were not allowed to withdraw cash
for 'he cheque until it was first proved that the cheque
was bona-fide and that A had assets against it (which
would involve three days' delay, and indeed is no more
than a private banking company has the right to insist
upon before it cashes a cheque from an unknown
source), the Post Office would be involved in no
financial risk whatever.
Ever since the year 1910 the United Kingdom Postal
Clerks' Association has urged the adoption of a system
of cheques upon Post Office accounts. In 1912, the
then Postmaster-General, Sir Herbert Samuel, forbade
the Association to engage in any public campaign
on the matter, but the Association has nevertheless sent
deputations to successive Postmasters-General urging
inquiry, and in 1920 and 1921 the Executive of the
Association collected and published a considerable
amount of information as to the working of the system
in other lands. In 1927 the Postmaster-General
referred the subject to the Post Office Advisory
Council, and a sub-committee of three (one a private
banker, Mr. Robert Holland Martin) reported in
March 1928 that 'at the present stage' a postal
cheque system 4 on the continental model ' should not be
embarked upon, but that apart from this continental
model ' a tentative step should be made in the direction
of offering cheque facilities for Post Office Savings
Bank depositors ' ; the sub-committee was, however,
divided as to the desirability of experimenting with a
system of limited cheques for depositors 'with adequate
A system of limited cheques means that under it the
1 Cmd. 3151 (1928),
160 THE FINANCIERS AND THE NATION
depositor could obtain 50 and 20 books of cheques
in maximum limits such as 10, 5, 2, and i ; but
as the minority member of the trio on the sub-com-
mittee reported, this system was of little more use to the
depositor in the Post Office Bank than the device, pre-
sently within his power, of buying a bunch of Postal
Orders in advance. The third member of the sub-
committee, therefore, stood out for a system of
Nothing, however, has been done by the Post Office
authorities to put either the limited recommendation
of the two sub-committee men or the unlimited
recommendation of the third sub-committee man into
operation. The report has simply been shelved, and
the contemptuous way it has been treated by the
Treasury, taken in conjunction with the persistent
retention of the absurd and indefensible regulation
which limits the amount of deposit to 500 in any one
year, warrants us in saying that the Post Office Bank
is still being deliberately crabbed. If the 500 limit
were withdrawn and a cheque system permitted, there
is no doubt whatever but that considerable deposits
which presently rest in the hands of the private Joint
Stock Banks would be immediately transferred to the
Post Office Bank, and the State thereby placed in
possession of vast funds at a lower rate of interest than
it is even now compelled to pay. The rate of interest
upon Post Office Bank deposits is nominally 2| per
cent., but the rate is really less than that, for the State
pays no interest on any balance under 1, and none
upon any broken calendar months. The interest
rate over all is, therefore, about s per cent, per annum.
But on other borrowings from its citizens the State has
since the War been paying over 5 per cent, and, even
after the conversion to lower rates, 3^ per cent, on
THE POST OFFICE BANK 161
War Loan. To the extent to which the State could
supplant 3^ per cent, money by 2^ per cent, money
t^e State would clearly be the gainer.
l!f it be contended that the 3^ per cent, money is
long-term money and not repayable at call, whereas
the 2j per cent. Post Office Bank money is repayable
at call, the short answer is that the Post Office deposits
grow steadily on balance year after year and are in
fact and reality long-term money. The Post Office
depositor does not readily ' run ' upon his own bank,
even in times of panic ; and the disgraceful political
ramp of 1931 made, all things considered, a wonder-
fully small impression upon him. He is looking, not
so much for a high rate of interest, as for security, and
nowhere can he find better security than in a bank
which is guaranteed by the entire assets of the nation.
Other countries run a postal cheque system
Austria (since 1883), Hungary (since 1890), Switzer-
land (since 1906), Germany (since 1909), Belgium
(since 1913), France, Italy, Holland, and Czecho-
slovakia (since 1918). In the year 1926 Germany's
Postal Cheque system showed a loss, but the systems
in France, Belgium, Holland, and Switzerland showed
a monetary profit. In Belgium, in the year 1929,
there were 249,100 Postal Cheque accounts, and for
the transfer of money from one account to another in
Belgium no charge was made ; but for cheques payable
to self or to a non-account holder (involving cash move-
ment) a mere nominal charge of 20 cents, or less than
one-third of a penny per cheque, was imposed.
Assuredly there would be some book-keeping costs
involved in operating cheques upon Post Office
accounts, but these costs would be more than covered
by the saving in interest which the State would make
upon the additional money attracted by a cheque
162 THE FINANCIERS AND THE NATION
system to the Post Office Bank, and if it were considered
desirable, there might be a charge imposed upon each
book of cheques issued. But these are details, and i^
is in the highest degree important that the stijpid
limitations which the nation has been induced to
impose upon its own bank but not upon the private
profit banks should be removed. With their removal
State banking would be given a tremendous fillip ;
and if simultaneously with their removal we had a
national ownership of the Bank of England our private
savings and our public borrowings for State purposes
would no longer require to run the gauntlet of the
REMEDIAL MEASURES : MUNICIPAL
* It is a form of competition which I do not think is fair, as it is
based on the credit of the community.' Mr. BEAUMONT PEASE,
Chairman, Lloyds Bank, in Financial Times, 21/2/29.
* Is this supremely successful experiment to remain unique ?
Is Birmingham to have the sole monopoly of this fruitful idea. . . .
Have we indeed reached the limit of what Municipal enterprise
should be allowed to attempt, if we confine it to a single town ?
For my part, I would as soon endeavour to imprison a volcano.'
Rt. Hon. NEVILLE CHAMBERLAIN, in Preface to Britain's First
Municipal Bank, J. P. HILTON.
* You may call it Socialism if you like : I have never been
frightened by a name. I do not care whether it is Socialism or
not, so long as it is a good thing. ... It would be a good thing
for the country if it should be further extended.' Rt. Hon.
NEVILLE CHAMBERLAIN, in Birmingham Post, 18/6/23.
AGAINST the menace of Municipal Banking
the Money Power in Britain has set its flinty
face. In several countries there have been successful
municipal banking ventures. The city of Budapest,
for example, has since 1876 run a municipal bank
which transacts all the banking business for the
municipality ; this Budapest Bank takes private
deposits and grants first mortgage loans up to 50 per
cent, of the value of property ; in form it is a Limited
Liability Company, but the Municipal Corporation
holds 98*3 per cent, of the shares, so that to all intents
and purposes it is a complete municipal venture.
164 THE FINANCIERS AND THE NATION
There have been large municipal banks in Breslau
and Chemnitz for many years, 1 provincial banks in
the Rhineland and Westphalia, and a Clearing-House
Bank in Germany the Kommunalbank serving over
3000 savings banks, which were practically all depart-
ments of local authorities.
In Switzerland most of the twenty-two Cantons have
what are known as Cantonal banks, but these are really
public utility companies paying a maximum dividend
of 4 per cent. Two-fifths of the capital in these
Cantonal banks is subscribed by the Cantons and the
other three-fifths by the private banks and the
In Germany and in Italy there are many people's
banks run on semi-co-operative syndicalist principles, 2
and there are People's banks, Co-operative banks
and Village banks, with varying constitutions and
structures, in evidence all over the world.
In Great Britain, of the larger local authorities,
only one, Birmingham, has acquired statutory power
to engage in public banking, all the other authorities
being driven to the private money market for their
loans. The venture at Birmingham did not succeed
without a long and desperate battle with the private
bankers ; and but for the determination and per-
sistence of the Mayor of the city, Mr. Neville Chamber-
lain, the bankers would have triumphed and the
Municipal Bank been killed in its infancy. In public
speeches the Mayor defied ' all the bankers in Lombard
Street ' and his political influence was, fortunately,
sufficiently great to secure banking powers for his
city despite the strenuous opposition of the Money
Lords, who were red with wrath even at the
1 Knoop, Municipal Trading (1908).
8 The Schultze-Delitzch and LuzzaUi systems.
MUNICIPAL BANKING 165
possibility of Birmingham getting clear of their
But although the results of the Birmingham venture
have been magnificent and unquestioned, and al-
though Royal Personages now open new Municipal
Bank premises, and although Mr. Chamberlain has
twice been a Chancellor of the Exchequer, he has
been impotent to get the same statutory powers as
Birmingham secured thrown open to other local
authorities in the country.
As Lord Mayor of Birmingham in 1916, Mr.
Chamberlain first carried a resolution for the in-
auguration of a banking department by the Corpora-
tion, but the City had at that time no legal power to
operate such a resolution and it was compelled to
seek powers for the purpose from Parliament.
On April n, 1916, Mr. E. S. Montagu intro-
duced a Bill in the House of Commons authorizing
local authorities with a population of over 50,000 to
establish municipal banks. Joint Stock bankers were
seriously alarmed at this invasion of their preserves,
and vehemently demanded that the Government
should withdraw the Bill ; and the Bill without
further ado was hurriedly withdrawn. Birmingham,
however, persisted and another Bill was produced,
though it was burdened with almost ludicrous handi-
caps to its success.
The Bill was called the Municipal Savings Banks
(War Loan Investment) Bill, and, after much careful
scrutiny and amendment by the private banking
interests, was finally passed, on August 23, 1916. But
when it emerged from the law-making machine the
Act was found to be so restricted and pruned as to be
practically useless. For example, clause I. (sub-
section (a)) declared that no municipal bank should
166 THE FINANCIERS AND THE NATION
be allowed to take deposits direct from an investor,
but that every investor should be a ' person in the
employment of some other person ' ; the investments,
moreover, had to be made through the employers
' either by way of deductions from wages or otherwise.'
By further restrictive clauses the money which any
person could invest was limited to 200 ; with-
drawals under seven days' notice were restricted to
i ; all the bank's investments were to be made with
the National Debt Commissioners ; and, finally, no
local authority was to be allowed to start a bank unless
it had a population of at least 250,000. As, if these
restrictions were not sufficient, it was enacted that
municipal banks were only to be allowed to operate
for three months after the termination of the War.
Birmingham was the only corporation which
engaged in operations under this precious Act. But
as the Treasury only allowed 3! per cent, to the Bank, and as
the Bank paid 3^ per cent, for the money from its depositors,
there was nothing left for working expenses. Naturally there
was a loss in Birmingham, and a yell of triumph at that
loss from the anti-Socialist Press. The Birmingham
Municipal Bank of 1916 was, as the Manchester Guardian
(August 30, 1916) truthfully observed, under sentence
of death from its inception. The regulations imposed
by the banking interests in Parliament had strangled
Mr. Chamberlain, however, had no intention of
allowing himself to be beaten in the first round by
cheap money-lord tricks like that ; the City Council
of Birmingham persisted in demanding a real, and
not a bogus, banking charter, and in 1919 it promoted
a private Bill and secured its passage through the
House of Commons. The new powers conferred upon
Birmingham included permission for the Corporation
MUNICIPAL BANKING 167
to engage in savings-bank deposit and house-purchase
business, and freed the venture from most of the
cramping and impossible restrictions of the Act of
Under the new Act of 1919, Birmingham was
permitted to carry on a Municipal Bank in accordance
with regulations which might, from time to time, be
prescribed or approved by the Treasury in London,
and one of the regulations which these gentry either
imposed or approved was that 50 per cent, of the
Municipal Bank deposits must be invested in Trustee
Securities (including War Loan) ; the balance of the
deposit money only being available for the purposes
of the Corporation of Birmingham.
Despite all opposition, however, the Birmingham
Bank has been a signal success, as the following figures
v Balance due
I 9 20 . . .
1924 . . . 4,243.541
1927 . . . 7,800,221
J932 . . - 15,335,688
The number of depositors in 1932 was 356,350, or
about one-third of the total population of the city.
The bank has succeeded in securing cheap money
to the municipality ; it has acquired a huge surplus
and reserve fund ; it possesses valuable property in
its branch offices its chief office alone is valued at
80,000 and costing the city ratepayer not a penny.
There have been attempts made by other munici-
palities in Britain to secure from Parliament similar
powers to those now enjoyed by Birmingham. Swansea
Corporation sought such powers in 1920, and the
168 THE FINANCIERS AND THE NATION
Corporation of Wigan sought powers in 1921, but
Parliament, doubtless at the instigation of private
banking companies, refused. Other corporations have
had committees of inquiry, but after the rebuffs (to
say nothing of the great cost of private bill promotion)
given to Swansea and Wigan, they have been deterred
from proceeding farther. In 1928 the City Council
of Sheffield had promoted a Bill extending their
powers, and one of the clauses in the Bill was for a
municipal bank on Birmingham lines, but they were
informed by the Treasury that unless the municipal
bank clause was withdrawn from the Bill the Treasury
would oppose it. 1 And on February 18, 1926, the
Treasury, through Sir Otto Niemeyer, wrote to the
agents who were acting for the Corporation of Bristol,
declaring that unless a clause promoting a municipal
bank were taken out of the Bristol Bill the Treasury
would do its utmost to kill the Bill. It is clear that
there is a well-trodden path between Whitehall and
Lombard Street. 2
On February 21, 1924, the Association of Municipal
Corporations, after consideration of a report on
Municipal Banking which had been signed by, among
others, the City Treasurers of Bradford and Swansea,
and the Town Clerks of Bristol, Derby, and Rother-
ham, decided to press the Government for * a general
Act ' enabling municipalities to set up banks on
the Birmingham model. The Institute of Municipal
Treasurers and Accountants also approved.
1 Official Report, 22/2/28.
2 By the year 1927 the following City Councils had endeavoured
in vain to get powers similar to Birmingham Worcester, Smeth-
wick, Middlesborough, Warrington, Bootle, Wigan, West Brom-
wich, Cardiff, Rotherham, Walsall, Barnsley, Westham, New-
castle-on-Tyne, Coventry, East Ham, Sheffield, Newport, Gates-
head, and St. Helens.
MUNICIPAL BANKING 169
On November 17, 1926, the City Editor of The
Times openly took the side of the larger municipalities
against the Treasury and the City. He declared
that such a city as Manchester should get power to
run a municipal bank. ' There is little doubt/ he
declared, ' that a considerable sum would accrue to
the Municipality in interest through its proposed
municipal bank.' But the Government, under
pressure from the professional money-lenders, refused
Meanwhile, without waiting for Parliamentary
sanction, several publicly-owned banking corpora-
tions had been started in Scotland.
In the beginning of 1920 when I was Convener
of the Law and Finance Committee on the Kirkin-
tilloch Town Council, I succeeded in inducing a
majority of the members of the Council to form our-
selves into a Municipal Bank Ltd. We did not
require any Parliamentary Powers to convert our-
selves into a limited liability banking company. I
had only to persuade a majority of the Council to
agree to have the majority registered as a Company
under the Companies Acts 1908 to 1917, and to
agree that the Company when formed should be
called the Kirkintilloch Municipal Bank Ltd. Once
a Municipal Bank Company is registered its modus
operandi is simple. The shares in the new company
can only be held by members of the Council, and no
member may hold more than one share, which he
must give up to his successor when he demits office ;
no profit or dividend is, or can be, paid on the shares,
and no * director ' can get remuneration for his
services. The cost of floating the company, provid-
ing books, stationery, &c., is only about 40, and
a loan for this purpose can be secured from the
170 THE FINANCIERS AND THE NATION
Common Good funds, or (in England) from the
Mayor's salary and expenses, or in a dozen other
The ' company ' being now formed and duly
registered, contracts with the Council (i.e. its own
members acting in another capacity) for the use of the
Town Chambers, offices, safes, treasurer's staff, &c.,
for a nominal sum per annum. A name-plate is put
up, ledgers and pass-books are purchased, and the
bank is in being.
The householders in the district are circularized,
and public meetings are held to explain the ad-
vantages of banking with the municipal bank. The
working class is reminded that when it deposits money
with the Post Office or any Trustee Savings Bank it
only receives at the best 2-| per cent, interest for its
money. All these Savings Bank and Trustee Deposits
(a total of 527,000,000) are taken by the Govern-
ment, and the Government, in turn, when it lends
money to the local councils for housing and other
purposes, lends at a profit. That is to say, the Govern-
ment borrows the savings of the worker at 2^ per cent,
and lends him back (through his municipality) his
own money at rates which have run sometimes as
high as 5 \ per cent.
But now, and since 1920, in Kirkintilloch, the
working class is invited to deposit its savings in its
own bank. The depositor is offered 3 per cent, on
his money that is \ per cent, more than the Govern-
ment gives him through its Post Office Savings Banks
and as the municipal bank is bound by its con-
stitution to invest its monies only with municipal
departments which have the security of the rates
behind them, the savings of the worker deposited with
the municipal bank are absolutely guaranteed.
MUNICIPAL BANKING 171
But to the thrifty citizen the benefits and advantages
of municipal banking do not end there. When the
municipality can get money at 3 per cent, (plus a
fraction for the working expenses, salaries, &c., of
the banking department) it can pay off the loans
which it has previously borrowed at 6 per cent., or
5^ per cent., or 5 per cent., and reduce the local rates.
In other words, municipal banking to-day, by enabling
the municipality to finance its departments upon a
3 per cent, basis, not only gives \ per cent, in-
creased interest to its citizen depositors, but it
reduces rates and enables municipal departments to
supply cheaper commodities and services to the
The Kirkintilloch Municipal Bank does not only
deal in ordinary savings bank business : it also deals
in deposit receipts, and the rate of interest paid upon
deposit receipt money is always \ per cent, over the
current rate of interest paid by private banks. Thus,
if the private banks are giving 2 per cent, for a given
month, the municipal bank deposit receipt rate is
automatically 2| per cent. ; if the private bank rate
is i \ per cent., the municipal bank rate is 2 per cent.,
and so on.
Before the municipal bank was instituted, the Kirk-
intilloch Town Council was frequently compelled to
go to the private banks for an overdraft, and the
overdraft rate of interest was always 2 per cent, above
the rate paid by the banker to his depositors. Now,
however, the Town Council gets its money from the
municipal bank at the exact sum (plus, as I have
already said, a small annual fraction for working
expenses) that the bank has paid, or is due to pay, its
At the end of the year the manager of the municipal
172 THE FINANCIERS AND THE NATION
bank balances up his books, finds how much he has
paid in interest, how much more is due to depositors,
and the exact amount of his working expenses. He
adds these three sets of figures together, and presents
the bill to the Town Council. He adds no profit for
the bank department, since the bank desires no
profit and, making no profit, the bank pays no income
tax. Nor can the bank ever sustain a loss, for the
Council takes all the bank's money and meets the
To the Town Council the gains are remarkable,
and at least 3d. per on the rates is being saved
every year. In the year 1922 (the third of its exist-
ence) the Kirkintilloch bank had 17,393 in deposits,
and was able to get those deposits at a net cost of
2 igs. 6d. per cent. It and the other towns which
followed its example, finance their municipal under-
takings upon a much lower rate of interest than do
towns and cities which possess no municipal banking
The security in the municipal bank is absolute.
The secrecy of the individual transaction is as in-
violate as in any other bank ; the depositor gets an
increased rate of interest and the public rates are
reduced by 3d. in the .
That is a Socialist experiment in operation. At
Irvine the Provost has declared that the municipal
bank is the most successful of the town's enterprises
and has been of great financial benefit to the
Of course there are objections. It is always much
easier to suggest and imagine difficulties than to
conceive and carry through any change which relieves
the community of a portion of the financial incubus
which strangles and paralyses municipal effort to-day.
MUNICIPAL BANKING 173
But thirteen years of practical experience have shown
that all the dismal prophecies about a run on the
municipal banks have been without foundation. We
have gone through a terrible period of privation and
unemployment, yet deposits have steadily increased ;
indeed, a run on the banks is scarcely thinkable, since
the only result would be to compel the Councils to
borrow on their public securities in order to pay off
the bank depositors ; and, as the Councils would
require to pay outside money charges for temporary
borrowing, the local rates would be increased and an
extra burden thereby laid upon the bank depositors.
There can be no panic, for the depositors know that
their money is invested in their own waterworks, gas
works, roads, &c. all publicly guaranteed enter-
prises and is therefore much safer than when invested
in the speculative ventures in which private banks so
often invest their depositors' money.
The other chief objection advanced to a municipal
bank on the Kirkintilloch model is that a reactionary
majority might find its way into the Local Council
and scrap the municipal bank at the behest of the
private banking interests. If that were tried, the
reactionary councillors would be obliged to borrow
money at dearer rates of interest in order to pay off
the depositors in the municipal bank ; that would
ipso facto raise the rates, and the raising of the rates
would in turn sweep the reactionary councillors from
office. No, the fact of the matter is, that once a
municipal bank is established it is there for good, a
standing illustration of the developing civic spirit, an
essential support to all the other municipal enterprises
and a partial relief to the community from the
terrible exactions of private banking.
The success of the Scottish Municipal Banks has
174 THfc FINANCIERS AND THE NATION
been phenomenal. In 1932-3 the deposits stood as
Kirkintilloch. (This from a population of ,
12,000 people which has also a , Deposits.
thriving Trustee Savings Bank e ** an *
where the deposits have increased
1 2,000 during the same period) . 1920 68,354
Irvine ..... 1920 23,608
Glydebank . . . . .1921 37^57
Motherwell ..... 1924 3 I 5> I oi
Peebles ..... 1925 44>56o
Selkirk ..... 1925 29,236
Gumnock ..... 1928 5*789
Kilsyth 1932 8,138
A Committee of Inquiry on the subject of municipal
banking was set up by Mr. Churchill under Treasury
Minute in September 1926. From its composition
the report was almost as predictable as would be
one from a committee of butchers set to inquire into
vegetarianism. The appointed inquirers were five
in number, two of them professional bankers, one,
Lord Bradbury, being chairman, while the other
three were associated one way or another with the
City ; and when Sir Percival Bower, the then Chair-
man of the Birmingham Bank, left the Committee
room after giving his evidence, he indignantly
denounced the Committee, and scorned in advance
any report it might issue.
And indeed it was with difficulty that the Com-
mittee kept its destructive hands off the Birmingham
Bank. The members solemnly declared they were
* not in agreement with the general policy which
MUNICIPAL BANKING 175
brought it into being * ; they were sorry the Bank
had been allowed to lend so much of its money to the
Corporation at call ; but c so long as the Birmingham
Bank remains an isolated undertaking * they would be
reluctant to recommend that it should be disbanded. 1
They recommended firmly that not another municipal
bank should be permitted for ten years. 2 And as for
the Scots Municipal Banks on the Kirkintilloch model,
no more of them, under any circumstances, should be
tolerated ; Lord Bradbury and his friends did not
wait for their final report to the Treasury, but they
* thought it desirable to inform the Treasury at once that, in
our opinion, the first opportunity should be taken to prohibit
the use in the title of any Banking Company of the term
" Municipal " or any other term which might suggest connec-
tion with a local authority.'
And, sure enough, when the next Companies Act
was put through in 1929 there was a clause (17) just
as the Bradbury Committee had signalled it to White-
hall and the City. The peril of cheap money for
municipal departments must be avoided. Cheap
money might induce municipalities to go spendthrift
and reckless. So the public was warned off the
banking course and the time dishonoured methods of
exploiting the municipal ratepayers were to continue.
Cheers from Mr. Charles Hatry and his like.
And now any municipality desirous, since 1929,
of forming a municipal bank has been compelled to
drop the word * municipal ' from its title. Thus Kilsyth's
bank is simply the Kilsyth Bank Limited and not the
1 Cmd. 3014 (1928), Pars. 133 et seq.
2 This was the precise period recommended to them by the
Governor of the Bank of England.
176 THE FINANCIERS AND THE NATION
Kilsyth Municipal Bank Ltd. as it was originally
intended to be.
But in Scotland we say that the proof of a pudding
is the preeing of it, and the final and conclusive recom-
mendation for a wider adoption of municipal banking
is, that there is not a single Town Councillor of any
political party in any city or town where a municipal
bank has been established who would propose to
disband that bank. Not one. Whatever else there
may be local disagreements about, there is none over
the success of the local municipal bank or over the
desirability of maintaining and developing it.
Every 1,000,000 or every multiple of 1,000,000
raised from the citizens for the citizens' business is
another block of capital taken out of the orbit of
the private speculator in finance. It is rather difficult
perhaps to estimate what proportion of municipal
bank money is what is called new money, i.e. money
saved for investment and which otherwise would not
have been invested at all but kept out of circulation
or, alternatively, would have been spent upon
consumable goods. In Birmingham Mr. Chamberlain
estimated that the proportion of new money for
investment was from 75 per cent, to 80 per cent,
of the total amount of money deposited in the muni-
cipal bank, but the Bradbury Committee refused to
put the figure higher than 25 per cent. Even so,
that extra saving of 25 per cent, indicates clearly that
by municipal banking we can get into effective muni-
cipal use about 100,000,000 presently retained in
jugs or in pockets.
REMEDIAL MEASURES : CO-OPERATIVE
* ... he who dwelleth well in fellowship and because of
fellowship shall not fail, though he seem to fail to-day, but in
days hereafter shall he and his work yet be alive. . . . Be of good
cheer, for the fellowship of Man shall endure, however many
tribulations it may have to win through.' WILLIAM MORRIS,
A Dream of John Ball.
THE Co-operative Wholesale Society Bank acts
as Banker, not only for the Co-operative Whole-
sale Societies, but for practically all the retail Co-
operative Societies, for the Labour Party, for most
of the Trade Unions and their Approved Health
Societies* for some of the larger Friendly Orders such
as the Shepherds and the Rechabites, and as at
January 1933, for 43,325 individuals. The entire
assets of the Co-operative Wholesale Society guarantee
the Bank. No accounts are opened for individuals
who, or for organizations which, are in any way in
competition with the Co-operative movement.
Customers operating current accounts with the
C.W.S. Bank still require to make use of the branches
of the Joint Stock Banks for paying in money or with-
drawing it from the C.W.S. Bank. And the C.W.S. Bank
is not a clearing bank, i.e. it has no separate account
with the Bank of England. The rate of interest paid
upon current accounts is determined at the end of
each half-year when the available surplus is ascer-
tained. The annual rate paid upon fixed deposits
178 THE FINANCIERS AND THE NATION
depends upon the length of time the deposit is allowed
to lie, running from 2 per cent, for money deposited
for less than six months, to 3| per cent, for money
which is allowed to lie undisturbed for four years.
Three months' notice is required for withdrawaV under
The Co-operative Wholesale Society Bank makes
no profits and pays no dividends. All surpluses,
except small sums placed to reserve, are divided equally
among borrowing and lending customers in the
form of a lower overdraft interest to the borrower, or
a higher rate of interest to the lender. c It is interest-
ing to note, 5 says Mr. Sidney Webb, c that if the Joint
Stock Banks adopted these methods the whole of the
dividend now paid to the shareholders would be
received by the customers.' 1
The Co-operative Wholesale Society Bank began
in 1872 as a Loan and Deposit Department of the
Wholesale Society, but it was not until the year 1876
when restrictions upon Co-operative Banking were
withdrawn by Parliament that the Bank really com-
menced to operate as a bank. It exists primarily to
promote Co-operative business, but its monetary
resources now far exceed what is required for Co-
operative trading requirements, 2 and very consider-
able sums are invested in Government Stocks,
Municipal Stocks, Public Board Stocks, Railway
Mortgages, &c. Its Credit Balances on January 14,
1933, amounted to over 65,000,000.
The present Manager of the Bank, Mr. T. J. Davies,
tells the story of how during the Coal Strike of 1912 the
1 Article in Contemporary Review, July 19 18, * How to Prevent
2 Economic Information, October I933> Co-operative Wholesale
CO-OPERATIVE BANKING 179
Northumberland Miners' Association ' being hard-
pressed for funds, applied to its Bankers for an over-
draft, excellent security being offered for the loan.
This overdraft was refused, however, and the North-
berlanvi Miners thereupon approached the Co-operative
Wholesale Society Bank, by which an advance was
made immediately, so enabling the Union to make
payments to its members.' l
Needless to say, the Northumberland Miners'
Association learned a lesson that day, and they
decided that they would in future deposit their funds
where there was less likelihood of political or economic
prejudice being used against them in an hour of crisis
and need, than was manifestly the case in the pri-
vate profit banking system.
When any apologist for the profit-taking system
in banking declares that the private banks have no
politics and no prejudices, refer him to a Northumber-
1 A Brief History of the Co-operativt Wholesale Society Bank, T. G .
THE JOINT STOCK BANKS AND THE MAGNATES
OF THE CITY
' We do not believe that any large proportion of bankers are
plotting to keep the world poor. There is a number of honestly
perplexed men among them, men who are dismayed and distressed
by the turn things are taking.' H. G. WELLS, The Work, Wealth,
and Happiness of Mankind, p. 49 1 .
* No dictator could interfere with our banking system, for this
was still a democratic country/ Hon. ALEXANDER SHAW at
Galashiels, in Financial News (7/1 1/33).
' Banks create credit. It is a mistake to suppose that bank
credit is created to any important extent by the payment of money
into the banks. . . . When a bank lends by granting an advance
or discounting a bill, it is a clear addition to the amount of the
means of payment in the community. The bank does not lend
money.' Encyclopaedia Britannica, Article on ' Banking and Credit,'
I4th edition, vol. iii. p. 48.
WE come now to the question of the relationship
which ought to exist between the State and the
Joint Stock Banks, the Acceptance Houses, the Dis-
count Bankers, and the Stock Exchange.
During the year 1886 there were in England and
Wales 109 separate Joint Stock Banks with a paid-
up capital of 38,500,000, and with deposits and
current accounts amounting to 229,000,000. Between
1886 and 1916 the process of amalgamation had sc
developed in the banking world that the number oi
individual institutions had been reduced from 109 tc
35 ; but the 35 banks remaining had increased theii
THE JOINT STOCK BANKS 181
capital by 10,000,000, and they had multiplied their
deposits and current accounts by four. These steps
to private trustification, however, had seriously
alarmed the Chambers of Commerce, and in 1919 a
Treasury order was issued forbidding further banking
amalgamations without the prior permission of the
State. The swallowing-up process thereupon was
halted, and fourteen years later, April 1933, there was
still ostensibly, as the following table shows, a com-
petitive banking system in operation :
The ' Big Five ' (Barclays, Lloyds,
Midland, the National Pro-
vincial, and the Westminster) . 5
Other Clearing Banks . . 4
County Banks . . . .5
West End of London . . .2
Irish Banks . . . -9
Scottish Banks . . . .8
There were also several Co-operative Banks taking
deposits (65,000,000) and there were certain deposits
in such private banks as Barings and Hambros.
This table, however, gives a somewhat exaggerated
picture of the extent to which competition still
persists. Several of the Scottish banks, for example,
are under the control of one or other of the * Big Five.'
The Clydesdale and the North of Scotland Bank are
controlled by the Midland. The National Bank of
Scotland is controlled by Lloyds, which holds no less
than 97*89 per cent, of its stock. The British Linen
Bank is under the control of Barclays. The other
four Scottish banks, the Union, the Commercial, the
182 THE FINANCIERS AND THE NATION
Royal, and the Bank of Scotland, have close working
arrangements. Indeed, all the Scottish banks have
undertaken not to outbid each other in rates for
deposits and advances. 1 One of the Clearing Banks,
Coutts, is now affiliated to the National Provincial,
while another, Williams Deacons, has exchanged
stock with the Royal Bank of Scotland ; the capital
of the Belfast Banking Company is now held by the
Midland, and the bulk of the Ulster Bank shares are
held by the Westminster, Taking the British position
as a whole, it is safe to say that were it not for the
fact that the bigger commercialists and industrialists
had become rather restive at the prospect of a private
banking trust, and had it not been for the minatory
attitude of the Treasury, the chances are that by this
time even the illusion of competition would have
disappeared altogether, and we should have been
faced with one gigantic money corporation dictating
credit terms to every trade in the land.
And in truth there is a great deal to be said, from
a purely administrative efficiency point of view, for
a single control in our banking system. There are
hundreds, perhaps, indeed, thousands, of redundant
bank buildings, frequently palatial marble-fronted
structures, erected at great cost and paid for out of
the overdraft levies imposed upon British traders.
There are unnecessary ornamental Directors droves
of them used for their names decoy ducks to
impress the public. Thus Barclays Bank in 1932 had
a Central Directorate of 44 members. Lloyds had 33,
the Midland 33, the National Provincial 24, and the
Westminster 26. Barclays, in addition, had 96 local
directors and the National Provincial 31. And Sir
1 ' Treatise on British Banking,* Sir Charles Addis, Edinburgh
Review, July 1918.
THE JOINT STOCK BANKS 183
Charles Addis, himself a distinguished banking
magnate, has given us an unforgettable picture of a
meeting of a British bank board. After telling us that
the few banks now remaining are virtually Govern-
ment guaranteed institutions, inasmuch as that the
insolvency of one of the great banks would involve
such widespread disaster that no Government could
afford to stand aside, he goes on to describe a meeting
of a board of management of a British bank, and
* the difficulty of withdrawing its members even temporarily
from their country pursuits and their obvious anxiety to lose no
time in returning to them ; most of them old men, many of
them long retired from business ; some of them ex-Government
officials and the like who have never been in business ; a few
ornamental titled persons ; only one or two here and there who
have no train to catch, and are willing to discuss the matter
in hand with attention and, it may be, with understanding.'
Yet, despite the waste and folly of the present
system, Sir Charles was m distress lest further amal-
gamations should irritate the public and play into
the hands of those who would nationalize the banking
The profits earned by the five large Joint Stock
Banks are amazing. In 1932 between them they
had profits to distribute amounting to nearly
11,500,000, and their rates of dividend ran from
12 per cent, to 16 per cent. The Scots banks and the
English Provincial banks do equally well.
In addition to these dividends, large sums went away
in salaries for what was often a mere joke of ' direction*
in unnecessary competitive buildings, and in a
ludicrous waste of competitive advertising, perhaps
in part designed to keep the Press friendly. Upon this
last point witness the annual recitations of the obvious,
and the laudations of their system, and the prog-
184 THE FINANCIERS AND THE NATION
nostigations (mostly erroneous) regarding future move-
ments in trade all covering several columns of the
great newspapers and weekly journals at advertisement
rates and uttered with great solemnity by the Bank
Chairman, and treated, of course, with appropriate
public reverence by the business managers of the Press.
Even under private enterprise banking a further
unification of the system would have manifest ad-
vantages. It would, inter alia, diminish the risk
of bank failure ; it would reduce waste and the
avoidance of waste is now the one economy as such
which is justifiable in our modern world. It would
mean that a shifting of business from one area to
another or, indeed, the total disappearance of an
industry altogether, would not involve a bank
collapse ; and arrangements could quite properly and
rightly be made whereby no existing salaried officer or
clerk would be discharged because of redundancy :
any superfluous staff could be dealt with, simply by
refraining from filling up vacancies in unnecessary
posts, as these vacancies arose on the death of the
existing occupants. Instead of crabbing the tendency
to amalgamation and the elimination of unnecessary
costs, the State might well facilitate every possible
step towards them.
But whether the State should go farther than that
in the business of credit creation and short-term
lending of that credit to private industry is a point
around which there has been considerable contro-
versy among Socialists, although the majority opinion
at recent annual congresses of the Labour Party has
clearly been in favour of the nationalization of the
Joint Stock Banks and the nationalization or control
of the other Finance institutions and banking houses.
The case for nationalization is that
THE JOTNT STOCK BANKS 185
(a) Credit control is as vital to the nation as control
of the army or the navy, and that there is no more
reason why private companies should exploit
the national credit for profit than that they should
have the army and the navy farmed out to them
for profit ; and
(b) that the enormous surpluses in the business every
year should accrue to the State.
Moreover, there is a growing appreciation of the
fact that the banks do not make their profits out of
the existence of deposits for which they may have
given 3 per cent, interest and the lending of these
deposits out again on overdraft at 6 per cent, interest.
What comparatively small profits they may make in
that way are completely eaten up in the administrative
costs of the business. But banking profits in the main
are derived from the credits created out of nothing
and upon which 5 per cent, or 6 per cent, is charged
to borrowers. As to this credit creation there is a
crowd of authoritative witnesses from the Encyclopaedia
Britannica to the Macmillan Committee. One quota-
tion from the Macmillan Committee's report l will
here suffice :
* It is not unnatural to think of the deposits of a bank as
being created by the public through the deposit of cash repre-
senting either savings or amounts which are not, for the time
being, required to meet expenditure. But the bulk of the
deposits arise out of the action of the banks themselves, for by
granting loans, allowing money to be drawn on an overdraft
or purchasing securities, a bank creates a credit in its books
which is the equivalent of a deposit. . . . The bank can carry
on the process of lending or purchasing investments until such time as
the credits created, or investments purchased, represent nine times the
amount of the original deposit. 9
Committee on Finance and Industry, Gmd. 3897, Par. 74.
186 THE FINANCIERS AND THE NATION
And it can be and is strongly argued that this pre-
rogative in the creation and issue of money credit
ought not to be a privilege of a few fortunate private
companies, but should be held and operated by the
State for the national advantage. *
Yet all these arguments probably weighed much
less with the Labour Party delegates than did the
firmly-rooted conviction which many of them held
that the Labour Government of 1929-31 had been
deliberately sabotaged by a City conspiracy. They
recollected that Mr. Ramsay Macdonald in his salad
days had warned them of a financiers' counter-
revolution. And other delegates who saw no evidence
of a calculated conspiracy but only evidence of the
inherent rottenness of a system, declared that the
periodic financial crises and crashes in the private profit
method of managing the nation's credit with re-
sultant misery to millions of innocent folk ought no
longer to be tolerated. These delegates held that the
only way to prevent a recurrence of the events of 1931
was to insist upon a unification in ownership of the
Joint Stock Banks, and upon that unified system being
brought under public ownership and control.
But there are, I think, serious objections from a
Socialist point of view to this policy.
Let us suppose that we have nationalized the Bank
of England, converted the Post Office Savings Bank
into a real National Bank, and created a National
Investment Board. We have then manifestly taken
away from the private profit bankers a very consider-
able and a growing part of our national money
business. We could then have all our requirements
for Electricity Boards and Transport Boards, Housing
and new State enterprises of one kind or another met
without any financial rake-off to the private banks ;
THE JOINT STOCK BANKS 187
and what would be left to the Joint Stock Banks
would be the business of short-term loans to private
enterprise and that alone !
Now could or should the State intervene in this
financing of private enterprise ? If it did, consider
the troubles that would inevitably arise over every
application for an overdraft which was refused by
the Banking Board. Would not the Government of
the day be accused of discrimination and favour to
A who had got an overdraft as against B who had
not although there might be quite valid reasons for
the refusal to B 1 . Moreover, the Joint Stock Bank
exists primarily to facilitate short-term lending to
private commerce and is, indeed, an integral part of
the private enterprise system of trading it is the
accountancy part of it whereas State banking, after
providing long-term investments for State enterprises,
is much more likely to develop along the line of
providing citizens with a safe deposit for their savings
and their valuables, keeping customers' accounts, and
providing exchange facilities, for all of which services
it might legitimately charge a fee. At any rate, it is
difficult indeed to visualize a State Banking system
lending credits to, and taking risks for, competitive
private profit enterprises.
Again, if we are to buy out the existing shareholders
in the Joint Stock Banks at present prices of their
shares, we should incidentally take over at book value
a considerable amount of frozen credits such credits,
say, as were lent during the cotton-boom period. We
should engage in an exceedingly bad bargain and
instead of potential savings to the State we might well
1 See The Nationalization of Banking, by Mrs. Amber Blanco
White (Allen & Unwin), for a very competently written argu-
ment upon this point.
l88 THE FINANCIERS AND THE NATION
have considerable losses. On the other hand, any-
thing in the nature of confiscation is so outside practical
politics and has so many suicidal disadvantages that
we need not take up time discussing it.
Then there are the political difficulties of
nationalizing the Joint Stock Banks. For the acquisi-
tion of a money-lending system that the State does
not want and for its own purposes does not require,
we should have hundreds of thousands of petty trades-
men and depositors mobilized against us, excited and
enraged by canards about the wicked Socialists intent
upon the stealing of their money ; and the net result
might be that we should fail to get the political backing
necessary for a socialization of bona fide and useful
services. Again, even if a political majority were
secured with this additional handicap against us, we
should be faced at once with the difficulty of dealing
with the branches of Foreign and Dominion banks
doing business here. If we nationalized the British-
owned banks but left these Foreign and Dominion-
owned branches alone, the latter could be used as
channels for the surreptitious export of British finance
capital, or, at any rate, they could continue to under-
take the very sort of business that the British-owned
Joint Stock Banks had been doing ; nevertheless, if we
compulsorily acquired them we would certainly have
serious international complications.
These, then, are the major objections to nationaliza-
tion of the Joint Stock Banking system. But are we to
continue without limit the system of fabrication of
money credit for private profit by these banking
organizations ? Are we to continue the existence of
companies who can, by withholding loans or by
discriminating unfairly in the issuance of loans, bring
about a trade standstill ?
THE JOINT STOCK BANKS 189
As to the first point the creation of credits. The
volume of credits issued during any given period is
dictated by the Bank of England. The Bank of
England can, as and when it chooses, increase or
decrease the deposits in the Joint Stock Banks by
means of what is called c open market operations.'
It can, when its directors think proper, purchase
millions of Securities, thereby automatically increasing
the amount of cash in the market, or it can sell
Securities and take cash off the market. One way or
another these operations affect the amount of deposits
lodged with the Joint Stock Banks, and as the Banks
can only with safety manufacture credits up to the
extent of nine times the actual cash they hold (or have
deposited at call with the Bank of England) it follows
that the volume of the credits the Joint Stock Banks
may issue depends upon the policy pursued by the
Bank of England. But not only is the volume of credit
which the Joint Stock Banks issue determined by the
Bank of England : it must be remembered that
the Bank of England also fixes the bank rate,
and that rate in turn fixes the overdraft rate of
interest to borrowers. The Macmillan Committee
(Par. 96), pointed out that the Bank of England ' is
in complete control of the cash base of the country. 5
Further, if we succeed in securing State ownership
of the Bank of England (creating the credits for
ways and means advances to the State and keeping
the profits thereon) and if we have a real Post Office
Bank operating a cheque system, we shall rapidly
diminish the area and extent of the exploitation of the
public which arises from the present system of credit
manipulation. Every industry converted into a State
Department or a public utility corporation would be
financed through the State Bank, and the area of
igo THE FINANCIERS AND THE NATION
private finance would be continuously and progressively
There remains the important question of sabotage.
Here we are learning much from President Roosevelt's
experiments in the United States. Deliberate sabotage
by the Bank Mandarins would be treason to the
Nation and could be promptly deal with, as any other
act of deliberate treason is, or can be, dealt with ; but
in truth a deliberate sabotage for political purposes is,
to say the least of it, extremely unlikely. In the first
place, the bank shareholder is in the business not for
his health or for his politics but for his pocket, and if
his bank refuses, despite a proffered and adequate
security, to finance a sound industry or a sound
company or individual in an industry, then the
bank shareholder will lose his dividends. In the
second place, any such sabotage would rally the
industrial magnates, whom the banks were discrimin-
ating against, to ardent and vehement antagonism to
the banks. Very reasonably these industrial gentlemen
would object to being sacrificed to make political
propaganda, and if the banks lose the favour and
goodwill of the industrialists they are finished. One
deliberate refusal to finance a business if associated
with any suspicion of political or economic prejudice,
as was alleged in a case of refusal of credits to the
Northumberland Miners' Union, 1 drives away huge
volumes of banking business for ever. Any similar
sabotage of an industry would destroy the bank that
engaged in it.
On the whole, then, and so long as private industry run
for profit continues, and to the extent to which it continues, its
banking system may well continue also as a private
1 See ante, Section on Co-operative Banking.
THE JOINT STOCK BANKS 191
Finally, the considerations which would discourage
us from nationalizing the Joint Stock Banks become
even more apparent when we look at the Acceptance
Houses and the Discount Houses. The former number
about twenty, and are really guarantors for particular
transactions in international trading, while the latter
three larger discount companies and seventeen
private firms borrow from the Bank of England and
the Joint Stock Banks, and, for a commission, discount
(that is, find immediate money for) the Bills of
Exchange for which the Acceptance Houses have
already guaranteed ultimate payment.
Both Acceptance Houses and Discount Houses
perform functions necessary to private trading trans-
actions, and so long as international trading is a
matter left to individual citizens and is operated by
them for a profit, the Acceptance and Discount
Houses had better remain the private risk-taking
enterprises that they are now. To some small extent
the Exports Credits Department has acted as guarantor
and insurer to British exporters and so has invaded
the City, but it only guarantees as a rule up to 75 per
cent, of the value of the order, and does not, in any
case, endorse the bills. The bills are, therefore, not
negotiable in the money market. Still it is quite
possible, and indeed desirable, that there will be
considerable developments in the State guarantee of
export-trading risks. But, in general, it may be said
that so long as international trade is conducted as
between individual sellers and purchasers so long will
the City exist to finance that trade.
It is, however, most important to observe, that
whosoever controls the Bank of England controls the
Discount Market even as he controls the Joint Stock
Banks, and if the State were to own and control the
192 THE FINANCIERS AND THE NATION
Bank of England, and if (as the Danish Central Bank
does now) it controlled all dealings in foreign currency,
we should be inflicting hardship on none, but would
only be taking the first great step necessary to trans-
form Finance Credit from being what it is to-day, a
great machine of exploitation, into a useful national
HIGH FINANCE AND THE CRISIS OF 1931
' Sir Walter Raleigh proposed that he should seize the Mexican
plate fleet. Bacon objected that such a proceeding would be
piracy, to which Raleigh retorted : " Did you ever hear of
men being pirates for millions ? " ' GARDINER'S History of
IN the summer of 1931 a Labour Government
suddenly sagged at its knees and fell dead. High
Finance had killed it as High Finance will kill the next
Labour Government, and the next again, unless be-
times the creation and withdrawal of money credit
comes to be generally regarded as a State Service,
even as the Navy is regarded as a State Service, and
one which the Nation would no more dream of
farming out as a job line to a company promoter, than
it would dream of farming out the Navy.
When the Government crashed in 1931 there was
some loose talk about a Bankers* Plot. But really
there was no Bankers 5 Plot ; that is, there was no
deliberately conceived, no consciously designed mani-
pulation of the Money Market with the object of
achieving a political end in the destruction of a Labour
Government. Nevertheless it is true that the day-to-
day policy of the Government had to be trimmed,
curtailed, and amended, because of decisions taken
in the City by groups of the Government's bitter
political enemies. And finally when the City's beggar-
my-neighbour system and the practice of leaving
194 THE FINANCIERS AND THE NATION
our tickets for the exchange of goods and services in the
control of some thirty non-elected gentlemen (who run
a company which is not required by law to file
accounts) developed to catastrophe with all the in-
evitability of a Greek tragedy, impudent clamours
were raised by the Money Traders' press, and the
public was mesmerized into the belief that it was the
Government and not the Money Traders who were
responsible for the crisis. There was no Bankers'
Plot. What happened was that the system of inter-
national lending of other people's money by private
groups had collapsed ; but the wrong prisoner went
into the Dock.
The dismemberment of Austria at the end of the
Great War made her economic recovery impossible.
Her few remaining industries were heavily indebted to
the Banks, and when the Banks, playing, as they
thought, for safety, proceeded to call in their loans,
thereby compelling borrowers to make a hurried sale
of goods at sacrifice prices in order to raise money to
repay their debts, Austria made a long sure hop
to the precipice. As one method of restricting Bank
credits the overdraft rate in Austria was raised to
12 per cent. Then the small man broke. In turn
the larger firms could no longer meet their obliga-
tions. The first big bank to go was the Boden in
1929, and the Credit Anstalt had to assume its liabilities
in order to ward off a general smash. By December 31,
1930, the Credit Anstalt itself was in difficulties ;
indeed, the losses amounted to its entire share capital
and reserves ; and the Government of Austria, in
association with the Austrian National Bank and
Messrs. Rothschild, hurried forward with a loan
of 89,000,000 Schillings in a vain last-hour endeavour
to save the system. But when, on May 8, 1931,
HIGH FINANCE AND CRISIS OF 1931 195
the Credit Anstalt Balance Sheet was issued, a shiver
ran through Europe, and the run upon Austrian credit
was intensified. Between May 1931 and the beginning
of 1932, there was a total flight of finance capital
from Austria, estimated by the Economic Intelligence
Service of the League of Nations at no less than
700 to 900 million Schillings.
The affairs of the Credit Anstalt do not further
concern us here, beyond noting that its capital of
.177,000,000 Schillings had to be written down
to 1,000,000 Schillings, and its foreign assets taken
over by a Company which was registered (of all places
in the world) in Monaco ! Most of the other Viennese
banks were perforce similarly reconstructed. The
crash was complete.
Into the firing-line the poor British tax-payer had
been shoved. On June 17, 1931, the Bank of England
advanced 4,400,000 to the Austrian Banks. (This
sum, it should be noted, was subsequently reimbursed
to the Bank of England by the British Treasury),
and three days later, on June 24, 1931, President
Hoover proposed a standstill upon international debts
for one year, a proposal which was agreed to by Great
Britain, at a cost to our National Budget, as Mr.
Snowden the Chancellor estimated, of no less than
11,000,000. So far then and this carries us down to
June 1331 only by blind partisan folly could the
British Labour Government be blamed in any way
for the crisis !
But now let us see what effect the Austrian smash
had upon Germany, and through Germany, upon
Britain. On the day following the Hoover proposal
for a postponement of payment of international debt,
that is, on June 25, 1931, the Bank of England was to
be found co-operating with the Bank of France, the
196 THE FINANCIERS AND THE NATION
Federal Reserve Bank of America, and the Bank of
International Settlements, in placing 20,000,000
Sterling at the credit of the German Reichsbank.
The panic has passed from Austria into Germany, and
the money traders of London were by this time, rather
seriously alarmed, for they held about 23 per cent, of
Germany's foreign-owned short-time debt, part of
which they had eagerly scrambled for when Germany
was compelled to offer 7! per cent, to 8 per cent, in
interest for accommodation. But by midsummer of
1931 all foreign investment in Germany appeared
dangerously like waste paper ; the North German
Wool Company had closed its doors on July 3, with
losses of 15,000,000 ; following hard upon that blow,
the Darmstaedter and National Bank blew up with
foreign obligations of 23,000,000 ; worse still, on
July 14 all the German Banks were closed by Govern-
mental decree ; and when they were re-opened at
the beginning of August, the discount rate was raised
to 15 per cent., and the German Government was
compelled to make the Banks a contribution of
445,500,000 Reich marks, in return for which it
became owner of all the Banks in Berlin with one
exception, and that the smallest of the lot.
Now our British banking system, as the Macmillan
Committee had previously warned us, was exceptionally
open to attack from a continental panic. In 1931
London held over 400,000,000 of foreign short-term
funds on loan, and the foreign lenders of that money,
when they realized that London had reinvested heavily
in bankrupt Austria and Germany, naturally sent
out an urgent call to London for the immediate return
of their money.
And thus began the drain upon the Bank of England.
Day by day, week by week, gold had to be exported
HIGH FINANCE AND CRISIS OF 1931 197
from Threadneccllc Street ; between July 15 and July
29 the gold reserve of the Bank of England fell from
164,0003000 to 1 32,000,000 ; trade languished ;
commerical houses failed : unemployment increased :
the soi^rces of public revenue diminished : in a world of
plenty, poverty multiplied and intensified.
On July 31, Sir George May's Committee urged that
to balance the Budget in Britain there ought to be,
inter alia> a cut of 66,500,000 upon the insurances and
reliefs supplied to the unemployed victims of the
collapse in High Finance. The Poor, it appeared,
had been eating far more than was consistent with
compound interest, and as it was considered to be of
the first importance that there should be no cut in
the rate of annual tribute upon war loan not even as
in Australia, a voluntary reduction in the rate of
interest ! the Government was strongly pressed to
balance its Budget by a reduction of the sustenance
given to the unemployed.
A majority in the Government strove in despera-
tion against such a solution of the country's diffi-
culties ; that majority was prepared to institute a
revenue tariff upon the imports of manufactured
goods (and that was a revolutionary and hazardous
change indeed for most of them), they declared them-
selves open to consider further reductions in arma-
ments, and to make whatever other restrictions in
expenditure might be adjudged necessary to balance
the Budget ; but cut at the poor unemployed victims
Down to this point in the summer of 1931 there was
little serious effort on the part of the Money Traders,
or their newspaper press, to blame the Government
for the crisis. Indeed for several weeks they were
accusing the wicked Bank of France of organizing
198 THE FINANCIERS AND THE NATION
the run upon London's gold reserves ; but this was
demonstrably untrue, and in the early part of August,
M. Flandin, the French Chancellor, and M. Laval, the
French Premier, both assured me that the charge was
baseless, and in the presence of an official witness from
the British Embassy in Paris, declared that they had
offered to lend money to London in order to save the
sterling, and that upon at least two occasions when
the Bank of France had bought gold, it had done
so at the direct request of the Bank of England, which
had made the request for purely regulatory and
administrative reasons !
It was not easy at the time even for members of the
Government to get at the facts. We never saw
the Governor of the Bank of England. He was, we
were informed, away somewhere in the wilds of
Quebec taking a cure for his health, and was far
beyond reach of a telephone. Nor did he return until
after the Government was broken, and evicted from
office. But during the crisis, the Deputy Governor
was a regular visitor to the Chancellor at Downing
Street, and day by day his lugubrious predictions of
disaster, as reported to the Government, seemed to
gather intensity. ... A bad day yesterday ... so
many millions withdrawn from the Bank . . . only a
hundred hours to go, and there will then be no money
for Old Age Pensions. . . . Next Wednesday will
see the finish ! ! And so on.
On August i, the Bank of England received authority
to acquire a foreign loan of 45,000,000 to meet the
drain upon its gold (as like as not some of the new
lenders were the withdrawers of a week before, but
now were relending at a higher rate of interest) ; and
the Chancellor had authorized an increase of
15,000,000 unbacked by gold, in the currency issue.
HIGH FINANCE AND CRISIS OF 1931 199
But still the drain continued. By August 22, the
foreign loan of 45,000,000 had almost entirely dis-
appeared, and the Bank had intimated to the
Government that another 80,000,000 was absolutely
necessary to peg the exchange. But this time, so we
were most emphatically assured, the Government
itself must borrow ; the credit of the taxpayer must
be placed behind any loan secured from Paris and New
York ; the credit of Threadneedle Street was no longer
adequate security for the backing of a loan.
And again and again we were warned that neither
Mr. Harrison of the Federal Reserve Bank in New
York, nor M. Moret, the Governor of the Bank of
France, would provide the credits necessary to save
the Bank of England unless a promise were given that
the British Budget would be balanced in such a
manner as they, the lenders and their London advisers,
approved. Later we had some occasion to doubt
whether either Mr. Harrison or M. Moret imposed the
precise conditions with which their friends and go-
betweens credited (or discredited) them. But at
that time, it was, or appeared to be, an ultimatum,
and a foreign one at that. A British Budget was to
be dictated by Foreign Financiers.
Rather than yield, the majority of the Cabinet
During the summer of 1931, while this great and
moving drama was being played out, the Money
Traders were scared stiff with fright. The abler men
among them well knew that the financial earthquake
that had shaken Austria and Australia, Germany
and South America, was not caused by the British
Government, but was due to some breakdown in a
money system, with which the democracies of Europe
200 THE FINANCIERS AND THE NATION
and their elected representatives had been repeatedly
warned not to interfere. Yet such was the hysteria of
the times that the poor Unemployed, and not the
system of private enterprise gambling with other
people's money, got blamed in the press for the crisis
in our national affairs ; and a wretched campaign of
public befuddlement reached its apotheosis in a speech
by Mr. Runciman, the new President of the Board of
Trade, who in an hour of exaltation at Newcastle-on-
Tyne declared that the Unemployed had eaten up
' a substantial part of the assets of the Post Office
Savings Bank. 5 l
Instead of saving the gold standard and balancing
the Budget, by means of a voluntary conversion of the
public debt to a lower rate of interest (as they had to
do later when the gold standard had gone in any case),
and by cancelling the derating subventions given
to wealthy and prosperous firms, and by a revenue
Tariff and by similar measures, the new Coalition
Government borrowed abroad the 80,000,000 at
4| per cent., plus heavy commissions, and it forced
considerable and drastic economies upon the poor.
Standards of living everywhere were reduced.
And thus was the money crisis of 1931 met and
No section of us perhaps can afford to be over dog-
matic with our remedies and solutions for the next
money crisis when it blows up. At best we may but
resolve to profit by experience, and to adjust our
finance to collective control step by step as we col-
lectivize control of our industry. But already it is
clear that the creation of our new money tokens can
no longer with safety be left as a private company pre-
1 Times, 26/10/31.
HIGH FINANCE AND CRISIS OF 1931 2OI
serve : that in citizen finance we can no longer afford
Hatryism : and that a widespread development in Muni-
cipal banking is a very urgent necessity. Also it is clear
that no democratic Government can function freely
if its projects are to be at the mercy of its political
enemies in the City. And as an essential preliminary
to any change towards Democracy in Finance, we must
first shatter the delusion that the oracles of the present
financial dispensation are to be obeyed with awe and
reverence. What advice they have tendered successive
governments in the recent past has been proved to be
wildly and ludicrously wrong. They were wrong
about reparations from Germany and its effects.
They were wrong when they advised Mr. Churchill
about the Gold Standard, and wrong when they pled
in 1931 that the re-suspension of that standard would
knock the bottom out of civilization.
Acceptance Houses, 180-91
Addis, Sir G., 119, 183
Allied Ironfounders Ltd., 77
Argentine, 5, 9, 139, 140
Austin Friars Trust, 77
Australia (gold mining), 84 ;
(Commonwealth Bank), 139
Austria, 119, 139, 194
Automatic machines, 77
Baldwin, Rt. Hon. S., 60
Balfour Committee, 1 1 2
Bank amalgamations, 181
Bank balance sheets, 69, 73,
Bank Charter Act, 34
Bank Directors, 182
Bank failures, 2, 3, 4, 19, 29,
31, 32, 34, 69
Bank of England (discovery of
notes), 2 ; (letter from Lord
J. Russell), 20 ; (during
panic of 1857}, 33 ; (during
panic of 1866), 34 ; (during
panic of 1931), 198 ; (ad-
vertisements), 51 ; (foreign
loans), 123, 132 ; (national-
ization of), 135 seq. ;
(creation of credits}, 189;
(dividends), 136 ; (policy),
* Bankers' Plot,' 193
Basle Committee, 120
Beaverbrook, Lord, 1 1 8
Bevan, G. Lee, 79
Birmingham Bank, 163, 174,
Bonar Law, 59
Bottomley, H., 83
Bradbury Committee, 174
Brazil, 9, 1 18
Bristol, 1 68
British Controlled Oilfields, 96
British Glass Industries, 77
British Museum, 4
Burn, Sir J., 135
Business Government, 88
Capital Issues Committee, 122
Central Banks, 139
Chamberlain, Neville, 163
Chinese Loan, 41, 114
City Equitable, 79
Clark, Colin, 132
Columbia, 8, 118
Commercial Bank of London,
Commercial crash (1825-6), 2 ;
(1890-7), no ;
Commercial fraud, 43, 79, 106,
Company promoting, 37, 43
Conversion Scheme, 60
Co-operative Banks, 164, 177
Corporation and General
Costa Rica, 34
Cotton finance, i, 41, 43, 95,
204 THE FINANCIERS AND THE NATION
Council of Foreign Bond-
Covent Garden, 95
Credit Anstalt Bank, 132, 194
Credit, creation of, 180, 185,
Cunliffe Committee, 48
Currency Bank Notes Act, 143
Czecho-Slovakia, 115, 139
Daily Telegraph, 54
Dardanelles, 1 1 5
Darmstaedter Bank, 196
Davenport, E. H., 128
Dawes Loan, 62
Death Duties, 57
Defaults. See Foreign Loans
Deflation, 58, 64
Denmark, 131, 139, 192
Discount Bankers, 180, 191
Dom Pedro, 6
Douglas, C. H., 144
Drapery Trust, 77
Dunlop Rubber speculations,
Economist, the, 120
Electricity, 97, 103
Encyclopaedia Britannica, 180
Export Credits, 191
Farrow's Bank, 68
Fauntleroy case, 3
Financial News, 53
Fisher Irving, 155
Flandin, M., 198
Foreign armaments, 114
Foreign loans, 2, 5, 8, 14, 34,
113, 117, 122, 131, 196
France, 109, 195, 198
Frozen credits, 120
Germany, 116, 118, 140, 164,
Gesell theory, 154
Gladstone, W. E., 137, 157
Glasgow, City of, Bank, 32
Glasgow Herald, 53
Globe Assurance, 27
Gold drain, 196
Greece, 9, 139
Guernsey experiment, 149 seq.
' Guinea-pig ' directors, 37
Hamburg loan, 1 1 6
Hansard Publishing Union, 83
Hatry, C., 74
Hawtrey, R. G., 135
High finance, 62, 98, 101, 107,
Honduras, 8, 34
Hooley, E. T., 36, 85
Hoover Standstill Agreement,
Hudson, George, 15
Income-Tax exemptions, 52
Inflation, 143, 152
Interest on War Loan, 44
et seq., 153, 197, 200
International Holdings Com-
Italian Government Bonds, 102
Japan, 114, 139
Johnson, General, 83
Joint Stock Banks, 157, 165,
1 80, 183 seq.
Jute Industries, 76
Keynes, J. M., 59, 124
Kirkintilloch Municipal Bank,
Kitson, A., 152
Kreuger, Ivar, 101
Laval, M., 198
Leaf, Dr. W,, 47
Liverpool, 32, 33 ; (note issue),
Lloyd George, 50, 53, no, 138
Lloyds Bank, 114, 120
Loans free of interest, 47
Loewenstein, A., 97
MacMillan Committee, 73,
1 10, 185, 196
Manchester Guardian, 57, 166
Match monopoly, 103
May, Sir George, 197
Money Power, the, 61, 135,
Moratorium, 46, 109
Municipal Banking, 163 seq.
Municipal Finance, 75
Nation, the, 57
National Debt, 153
National dividend, 145
National Investment Board,
76, 121, 122 seq.
National Provincial Bank, 1 1 5
Nationalization of Joint Stock
New Capital Issues, 64
New South Wales, 116
New Statesman, 128
New Zealand, 139
Norman, Sir Montagu, 135
North Borneo, 139
Northumberland and Durham
Northumberland Miners Union,
Note issues, 148, 149
Oak Investment, 77
Overend, Gurney & Co., 34
Paine, W. W., 126
Paraguay, 9, 34, 117
Paul, Sir J., 29
Pease, Beaumont, 119, 163
Political power, 137, 165, 193
Post Office Bank, 156
Railway speculations, 14 seq.,
30; (cooked balance-sheets),
Raleigh, Sir W., 193
Reparations, 62, 117
Retail Trade Securities, 77
Rothschilds, 9, 10, 194
Royal British Bank, 29
Runciman, Rt. Hon. W., 200
Russell, Lord, 43
Russia, 109, 1 1 8, 139, 140
Sadleir, J., 30
Salter, Sir A., 116, 122, 130
San Domingo, 34
Scottish Municipal Banks, 174
Shaw, Hon. A., 180
Siberian Goldfields, 38
Silk, i, 97
Snowden, Lord, 195
Soddy, Professor, 49, 152
South American Banks, 139
South American shares, 2, 5,
9 8 >. * * 7
Spanish Bank, 139
Spanish Match Loan, 106
Speculators, i, 14, 32, 63,
Spencer, Herbert, 14
State Banks, 140
State issue of notes, 46, 147, 149
State lotteries, 4
Steam power, i
Stock Exchange war, 6 ;
(boom of 1920), 64 ; (regu-
Strakosch, Sir H., 59
Suez Canal, 13
Suicides, estates of, 30
Surplus stores, 58
Sweden, 108, 139, 140
Switzerland, 139, 164
206 THE FINANCIERS AND THE NATION
Times, The, 58, 74, 169
Tipperary Bank, 3 1
Trustee Savings Banks, 156
Turkey, 10, 139
U.S.A., 6, 35, 77, 139, 196
War Loan Sweepstakes, 87
War Loans, 45 seq.
Watt, James, i
Watts, Walter, 27
Webb, S. and B., 148, 178
Wells, H. G., 1 80
White, James, 94 <
Wigan, 1 68
Withers, Hartley, 126
Woodrow Wilson, 62
Young Plan, 62, 104
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